In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

Question

Quizplus · Accepted Answer

The multiplier is calculated as:

Multiplier = change in equilibrium real GDP / change in autonomous expenditure

In this case, the change in autonomous investment is $40 billion, and the change in equilibrium real GDP is $100 billion.

Multiplier = $100 billion / $40 billion = 2.5

Therefore, the statement is true.

In the Aggregate Expenditures Model, If a $40 Billion Increase