Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, JG =Government Purchases. Consider a simple aggregate expenditures model, where JAE = C + I_P + G, and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is found using the formula A) ∆Y* ÷ initial ∆AE where Y* = equilibrium real GDP by the ∆ = change in, AE = aggregate expenditures. B) ∆AE ÷ ∆Y*. C) ∆Y* * MPC where MPC = marginal propensity to consume. D) 1 ÷ MPC.

Question

Quizplus · Accepted Answer

The formula for the multiplier is the change in equilibrium real GDP (∆Y*) divided by the initial change in aggregate expenditures (∆AE). Therefore, option A is the correct choice. Options B, C, and D are incorrect because they either incorrectly reverse the numerator and denominator or involve irrelevant factors such as the marginal propensity to consume.

Let AE = Aggregate Expenditures, C = Consumption, IP =

Let AE = Aggregate Expenditures, C = Consumption, I_P =