If firms increase their investment spending,the resulting change in equilibrium GDP is equal to the change in investment spending
A) multiplied by 2.5
B) alone
C) multiplied by the expenditure multiplier
D) divided by the marginal propensity to consume
E) plus the change in consumption spending

Question

Quizplus · Accepted Answer

The expenditure multiplier shows how changes in investment spending (or any other autonomous expenditure) affect equilibrium GDP. By definition, the expenditure multiplier is equal to 1 divided by the marginal propensity to consume (MPC). Therefore, the change in equilibrium GDP resulting from a change in investment spending is equal to the change in investment spending multiplied by the expenditure multiplier.

If Firms Increase Their Investment Spending,the Resulting Change in Equilibrium