Refer to the accompanying figure. Based on the figure, the income-expenditure multiplier in the economy illustrated equals:
A)0.75
B)4
C)4,000
D)1,000

Question

Refer to the accompanying figure.  Based on the figure, the income-expenditure multiplier in the economy illustrated equals:
A)0.75 
B)4 
C)4,000 
D)1,000

Quizplus · Accepted Answer

The income-expenditure multiplier is the effect of a one-unit increase in autonomous expenditure on short-run equilibrium output. The diagram reveals that every increase in autonomous expenditures (the vertical intercept)of 1,000 leads to an increase in short-run equilibrium GDP of 4,000. This implies an income-expenditure multiplier of 4.

Refer to the Accompanying Figure