Exhibit 9-6 Keynesian aggregate expenditure model when the MPC is 2/3

In Exhibit 9-6, the spending multiplier for this economy is equal to:
A) 1 2/3.
B) 2 1/2.
C) 3.
D) 5.

Question

Exhibit 9-6 Keynesian aggregate expenditure model when the MPC is 2/3
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In Exhibit 9-6, the spending multiplier for this economy is equal to:
A) 1 2/3. 
B) 2 1/2. 
C) 3. 
D) 5.

Quizplus · Accepted Answer

The spending multiplier for this economy is equal to 1/(1-MPC) or 1/(1-2/3) = 3. Therefore, the correct answer is choice C, which is the closest option to 3.

Exhibit 9-6 Keynesian Aggregate Expenditure Model When the MPC Is