ECON 162 Lecture 31: Fixed-Price Keynesian Model/Consumption Function/Saving Function/Aggregate Expenditure Function/Keynesian Equilibrium 11/15

Compute the value of the Keynesian spending multiplier.

1. In the Keynesian model, suppose that the economy has the following values : C = 100 + 0.75*(Y-T) G = 300 I = 200 NX = 0 T = 200

a) Solve for the level of equilibrium output in this economy.

b) What is the multiplier on government spending? (I want a specific number here, not a definition)

c) Household savings is defined as disposable income minus consumption (Y - T = C). What is the level of household savings in this economy?

"A given change in business investment will cause a larger change in equilibrium output." This statement describes an important Keynesian concept called the
a. multiplier effect
b. marginal propensity to consume
c. marginal propensity to invest
d. consumption function