Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will
A) decrease by $400.
B) increase by $400.
C) decrease by $750.
D) increase by $750.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1 - slope of AE curve) = 1/(1 - 0.75) = 4. Therefore, a $100 decrease in autonomous spending leads to a 4 times larger decrease in equilibrium expenditure, which is $400.

Suppose That the Slope of the AE Curve Is 0