A change in autonomous aggregate expenditures will shift aggregate demand by an amount equal to the change in autonomous aggregate expenditures times the multiplier.

Question

Quizplus · Accepted Answer

This statement is known as the expenditure multiplier model in macroeconomics, which states that an initial increase in autonomous expenditure leads to a larger increase in the total aggregate demand due to a multiplier effect. The magnitude of the multiplier depends on the marginal propensity to consume (MPC), which is the fraction of each additional dollar of income that is spent on consumption. The formula for the expenditure multiplier is 1/(1-MPC), which indicates the total change in aggregate demand is equal to the initial change in autonomous expenditure multiplied by the multiplier.

A Change in Autonomous Aggregate Expenditures Will Shift Aggregate Demand