Answer to Question #153800 in Macroeconomics for Sandali

Question

In the simple Keynesian model, an increase of one dollar in autonomous expenditure will  cause equilibrium income to increase by a multiple of this one dollar increase. Explain the  process by which this happens using different approaches of explanations

Answer 1

Keynesian model is a macroeconomic concept that outlines the impact of spending to various outputs including inflation and employment. Spending a dollar impacts the economy in various ways including provision of job opportunities to the labor market. The government also raises taxes from such spending in terms of value added tax or direct taxation. Spending the autonomous dollar results to economic growth at the same rate of spent dollar hence the Keynesian model upholds in the situation leading to increase in income.