The simple multiplier applies to short- run situations in which the price level is constant. The simple multiplier can be defined as
A)the change in national income resulting from a change in expenditure, multiplied by the number of years since the initial change.
B)national income divided by aggregate expenditure.
C)a change in aggregate expenditures multiplied by the equilibrium level of national income.
D)the change in national income resulting from a change in saving.
E)the change in equilibrium national income divided by the initial change in autonomous expenditure that brought it about.

Question

Quizplus · Accepted Answer

The simple multiplier is the change in equilibrium national income that results from a change in autonomous expenditure (such as government spending or investment) divided by the initial change in autonomous expenditure that brought about the equilibrium level of income. This is expressed mathematically as:

Multiplier = 1/ (1 - MPC)

where MPC is the marginal propensity to consume, or the fraction of additional income that is spent on consumption. The higher the marginal propensity to consume, the larger the multiplier, meaning that a given increase in autonomous expenditure will result in a larger overall increase in national income.

The Simple Multiplier Applies to Short- Run Situations in Which