The expenditure multiplier equals
A) MPC - MPS where MPC is the marginal propensity to consume and MPS is the marginal propensity to consume.
B) APC - APS where APC is the average propensity to consume and APS is the average propensity to save.
C) 1/(slope of AE curve).
D) 1/(1 - slope of AE curve).

Question

Quizplus · Accepted Answer

The expenditure multiplier equals 1/(1-slope of AE curve). This formula reflects the fact that any initial change in spending will be magnified by the multiplier effect as it ripples through the economy, ultimately resulting in a larger total increase in GDP. The slope of the AE curve reflects the responsiveness of spending to changes in income or GDP, so the steeper the slope, the smaller the multiplier and the less responsive the economy is to changes in spending.

The Expenditure Multiplier Equals