Simple Keynesian model

Given =100million

=200 million

C=

Autonomous spending

Calculate the value of the multiplier

Equilibrium level of income

(a) Autonomous Spending

100million + 200 million=300 million
(b) Therefore 1st find the value of α (your multiplier) then multiply this by your total autonomous
components

α=

=5

(c) Now we can find equilibrium level of income

y= 5× [100million +200 million]

y = 1500million
Keynesian model with government component---government spending

Given =100million

=200 million

=280 million

C=

Calculate

1. Autonomous spending
2. Calculate the value of the multiplier
3. Equilibrium level of income

(a) Autonomous Spending

100million + 200 million+ 280million=580 million

(b) Therefore 1st find the value of α (your multiplier) then multiply this by your total autonomous
components

α=

=
 =5

(c) Now we can find equilibrium level of income

y= 5× [100million +200 million+280 million]

y = 2900million

With increased government spending you can see that the value of the multiplier remains the same,
autonomous spending increases and equilibrium level of income increases.