In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the slope of the aggregate expenditures curve is 0.8?
A) 1
B) 4
C) 5
D) Cannot be determined without information on marginal propensity to consume.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. If the slope of the aggregate expenditures curve is 0.8, it implies that the MPC is 0.8. Therefore, the multiplier is 1/(1-0.8) = 5.

In the Simple Aggregate Expenditure Model Where All Components of Aggregate