Macro Foundations · intro
What moves on the Keynesian Cross diagram
Injections are re-spent round after round; with MPCMPCMarginal propensity to consume: the fraction of an extra dollar of income that gets spent rather than saved. 0.6, output rises by 1/(1−0.6) = 2.5× the injection.
EquilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change. sits where spending meets the 45° line.
A $10 injection lifts the PE line.
Output rises by $25, each round of spending becomes someone's income, who spends 60% again. That cascade IS the multipliermultiplierThe amount total output changes per dollar of initial spending change, powered by respending: 1/(1−MPC) in the simplest case..
Examiners ask this as: stimulus multiplier cross, autonomous spending jump.
Other scenarios on Keynesian Cross