Multiplier Effect of Autonomous Demand on Equilibrium Output

Example Calculation of the Multiplier (k)

In a simplified economic model, the equilibrium output (Y) is determined by the equation Y = k(c₀ + I), where 'k' is a multiplier with a value greater than 1, 'c₀' represents spending that does not depend on income, and 'I' represents investment spending. If businesses suddenly become more pessimistic about the future and reduce their investment spending (I), while 'k' and 'c₀' remain unchanged, what will be the resulting effect on the equilibrium output (Y)?

Calculating Equilibrium Output

Deconstructing the Equilibrium Output Equation

In the macroeconomic model where equilibrium output is represented by the equation Y = k(c₀ + I), match each component of the equation to its correct economic description.

Derivation of the Change in Equilibrium Output from an Investment Shock