Question

How to calculate equilibrium income using the multiplier???

Mpc=0.75

Multiplier =4

Investment =200 million

Autonomous consumption =100 million

Answer 1

Solution:

Equilibrium income = Multiplier x AD

AD = C + I

C = 100 + 0.75Y

Y = 100 + 0.75Y + 200

Y – 0.75Y = 300

0.25Y = 300

Y = 1,200

Equilibrium income = 1,200 $\times$ 4 = 4,800

Equilibrium income = 4,800