In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $1,000 billion, equilibrium real GDP increases by $2,500 billion.Which of the following statements is true?

Question

Quizplus · Accepted Answer

The multiplier is the ratio of the change in equilibrium GDP to the change in autonomous aggregate expenditures. In this case, the multiplier is 2.5 (since $1,000 billion increase in autonomous aggregate expenditures leads to a $2,500 billion increase in equilibrium GDP), which means that a $1 increase in autonomous aggregate expenditures leads to a $2.5 increase in equilibrium GDP. The MPC cannot be determined from the information given.

In the Simple Aggregate Expenditure Model Where All Components of Aggregate