The expenditure multiplier
A) is defined as the inverse of the savings rate
B) is greater than zero but less than one
C) does not depend on consumption behavior
D) is larger in a country with a large MPC than in a country with a small MPC
E) determines the effect on consumption from an increase in disposable income

Question

Quizplus · Accepted Answer

The expenditure multiplier is the amount by which an initial increase in aggregate expenditures eventually increases the equilibrium level of GDP. It is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Therefore, a larger MPC (i.e. a higher propensity to consume) will result in a larger expenditure multiplier.

The Expenditure Multiplier