THE MULTIPLIER, AGAIN

We see that equilibrium income has dropped from 5000 to 3333.33, a drop of 1666.67. The drop of 1666.67 in equilibrium income is the product of the drop in investment, 500, times the multiplier,

= 3.33333

Checking our work, sure enough 3.33333*500 = 1666.67. We see that the multiplier works for investment, too.

Since it applies in the same way to all components of autonomous spending, or, equivalently, is called the "autonomous spending multiplier."


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