The expenditure multiplier equals 5 and there is a $3 million increase in investment. Equilibrium expenditure
A)increases by $0.60 million.
B)increases by $15 million.
C)increases by $3 million.
D)decreases by $15 million.
E)increases by $5 million.

Question

Quizplus · Accepted Answer

The expenditure multiplier indicates how much total output will change in response to a change in autonomous spending. With a multiplier of 5, a $3 million increase in investment will increase equilibrium expenditure by 5 times $3 million, which is $15 million.

The Expenditure Multiplier Equals 5 and There Is a $3