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

Question

Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-slope of AE curve). Here, it is 1/(1-0.67) = 3.03. A $100 decrease in autonomous spending results in a decrease in equilibrium expenditure by approximately $300 (100 * 3).

Suppose That the Slope of the AE Curve Is 0