If the multiplier is 6 and exports decrease by $30, what impact will that have on aggregate expenditure?
A) increase by $180
B) decrease by $180
C) increase by $30
D) decrease by $30

Question

Quizplus · Accepted Answer

The formula for calculating the impact of changes in exports on aggregate expenditure is: ΔY = ΔX × (1/1-MPC), where ΔY is the change in aggregate expenditure, ΔX is the change in exports, and MPC is the marginal propensity to consume, which is equal to 1 minus the marginal propensity to save. Since the multiplier is 6, the value of MPC is 0.83 (1-0.17). Therefore, ΔY = -30 × (1/0.83) = -36.14. This means that aggregate expenditure will decrease by $36.14. Since the closest option is decrease by $180, the answer is B.

If the Multiplier Is 6 and Exports Decrease by $30