An increase (decrease) in autonomous spending causes aggregate output of final goods to increase (decrease) by a larger amount due to ______ .
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Multiplier.
When autonomous spending, say investment, rises, output first rises by the same amount and is paid out as income. Households spend the fraction MPC of that income, which raises demand and output again, round after round, so output rises by a larger amount than the first spending. The ratio of the two is the multiplier, 1 ÷ (1 − MPC).
With an MPC of 0.8, for instance, a rise of 10 in autonomous spending raises equilibrium output by 50; a fall works the same way in the opposite direction.
Why the other options are incorrect
Option (1) Ex ante consumption. — Incorrect. Ex ante consumption is the planned value of consumption, one component of aggregate demand; the induced rise in it is a step in the multiplier process, not its name.
Option (2) Ex ante investment. — Incorrect. Ex ante investment is planned investment, a part of autonomous spending itself; a change in it sets off the multiplier but does not explain the larger change in output.
Option (3) Marginal efficiency of investment. — Incorrect. This refers to the expected return on new investment, which helps decide how much firms invest; it says nothing about why output changes by more than the spending.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 24-05 S1 | 30-05 S2* | – | – | – |
* A similar question.
NCERT (2025-26): “4.3.3 The Multiplier Mechanism … It was seen in the previous section that with a change in the autonomous expenditure of 10 units, the change in equilibrium income is equal to 50 units (from 250 to 300). We can understand this by looking at the multiplier mechanism, which is explained below:… The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy.…” |