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

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. Therefore, a $100 increase in autonomous spending will increase equilibrium expenditure by approximately $300.

Suppose That the Slope of the AE Curve Is 0