If autonomous expenditures increased by $10 billion, what is the change in aggregate demand at a given price level if the MPC to consume is 0.8?
A)increase by $50 billion
B)increase by $100 billion
C)decrease by $100 billion
D)decrease by $10 billion

Question

If autonomous expenditures increased by $10 billion, what is the change in aggregate demand at a given price level if the MPC to consume is 0.8?
A)​increase by $50 billion
B)​increase by $100 billion
C)​decrease by $100 billion
D)​decrease by $10 billion

Quizplus · Accepted Answer

The change in aggregate demand can be calculated using the multiplier effect formula, which is 1/(1-MPC). With an MPC of 0.8, the multiplier is 1/(1-0.8) = 5. Therefore, an increase in autonomous expenditures by $10 billion leads to an increase in aggregate demand by $10 billion * 5 = $50 billion.

If Autonomous Expenditures Increased by $10 Billion, What Is the Change