If the slope of the aggregate expenditure curve is 0.75, the expenditure multiplier is equal to
A) 0.25.
B) 0.75.
C) 1.33.
D) 4.00.
E) 5.00.

Question

Quizplus · Accepted Answer

The expenditure multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. If the slope of the aggregate expenditure curve is 0.75, this is the MPC. Therefore, the multiplier is 1/(1-0.75) = 4.00.

If the Slope of the Aggregate Expenditure Curve Is 0