Wize University Macroeconomics Textbook > Aggregate Expenditure

Equilibrium Output

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Equilibrium Output


The equilibrium output is the point where planned aggregate expenditure is equal to national income (output).


Example:


C = 50 + 0.89Yd

I = 15

G = 5

X = 10

IM = 0.2Y

T = 0.1Y


What is the equilibrium output?












Image illustrating Equilibrium Output





In the example above, if the investment increases by 10, what would be the new equilibrium output and multiplier?





Multiplier

The multiplier looks at the change in the equilibrium output caused by a one dollar change in autonomous expenditure. It is also called the autonomous/market/government multiplier.


Multiplier=  ∆ Output ∆ Autonomous Expenditure\boxed{\text{Multiplier} =\ \frac{\ ∆\ Output}{\ ∆\ Autonomous\ Expenditure}}



Multiplier=  1 1− Slope of AE\boxed{\text{Multiplier} =\ \frac{\ 1}{\ 1 -\ Slope\ of \ AE}}



Slope of AE=  MPC (1−t) −MPI\boxed{\text{Slope of AE} =\ {\ MPC\ (1 - t)\ - MPI}}


Where:


MPC - Marginal Propensity to Consume

t - tax rate

MPI - Marginal Propensity to Import. It is also called MPM or m.