Based on the economic scenario described below, calculate the total resulting change in the economy's equilibrium output.

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The change in equilibrium output (ΔY) resulting from a change in autonomous spending, such as a change in investment (ΔI), is calculated by multiplying the change in spending by the multiplier (k). The formula is expressed as: $ΔY = k \times ΔI$.

Formula for Change in Output from an Autonomous Spending Shock

Calculating the Economic Impact of an Investment Increase

In a closed economy, an unexpected surge in business confidence leads to an increase in autonomous investment spending of $40 billion. This, in turn, causes the total equilibrium output to rise by $200 billion. Based on this information, what is the value of the spending multiplier in this economy?

An economic advisor states, 'A proposed $50 billion increase in autonomous investment spending will boost the economy's total output by $250 billion.' Analyze this claim. What economic variable's value is implicitly assumed by the advisor? Calculate its value and explain how it connects the initial spending increase to the total change in output.

Analyzing an Economic Policy Claim

A government official claims, "Based on our economic models, a $100 billion injection in autonomous investment will increase our national output by exactly $500 billion, as our spending multiplier is 5." Critically evaluate this statement. In your response, discuss at least two real-world factors that could cause the actual change in output to be different from this prediction, explaining why the simple formula for the change in output might not hold perfectly.

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