When autonomous expenditure increases, equilibrium aggregate expenditure
A) increases by an equal amount.
B) decreases by a greater amount due to the multiplier.
C) decreases by an equal amount to offset the unplanned portion.
D) increases by a greater amount due to the multiplier.

Question

Quizplus · Accepted Answer

When autonomous expenditure, such as government spending or investment, increases, it creates a ripple effect throughout the economy. The increase in autonomous expenditure leads to an initial increase in aggregate expenditure. This increase in aggregate expenditure then leads to a further increase in consumption and investment, as the multiplier effect takes hold. Thus, the equilibrium aggregate expenditure will increase by a greater amount due to the multiplier effect. Therefore, option D is correct.

When Autonomous Expenditure Increases, Equilibrium Aggregate Expenditure