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. If the MPS is 0.4, then the multiplier is

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC). Since MPS is 0.4, MPC is 0.6. Thus, the multiplier is 1/(1-0.6) = 2.5.

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

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