If the marginal leakage rate is 0.2,then a $300 fall in autonomous planned expenditures will shift the IS curve leftward by the amount of
A)$300.
B)$1500.
C)$75.
D)$600.

Question

Quizplus · Accepted Answer

The shift in the IS curve is determined by the multiplier effect, which is calculated as 1/(1 - marginal leakage rate). With a marginal leakage rate of 0.2, the multiplier is 1/(1 - 0.2) = 1/0.8 = 1.25. Therefore, a $300 fall in autonomous planned expenditures results in a total decrease of 1.25 * $300 = $375. However, given the options provided, none directly match this calculation, suggesting a potential misunderstanding in the question's premise or a mistake in the calculation interpretation based on the options given. The closest option to the correct calculation is not listed, indicating a need for clarification.

If the Marginal Leakage Rate Is 0