Suppose that the slope of the AE curve is 0.67. Then a $100 increase in autonomous spending causes equilibrium expenditure to
A) increase by $300.
B) decrease by $200.
C) decrease by $300.
D) increase by $200.

Question

Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-slope of AE curve). With a slope of 0.67, the multiplier is 1/(1-0.67) = 3. Therefore, a $100 increase in autonomous spending results in a $300 increase in equilibrium expenditure.

Suppose That the Slope of the AE Curve Is 0