A $1.5 trillion increase in investment leads equilibrium expenditure to increase from $7.0 trillion to $10.5 trillion. In this case, the expenditure multiplier is
A) 7.00.
B) 10.5.
C) 2.33.
D) 4.67.
E) 1.50.

Question

Quizplus · Accepted Answer

The expenditure multiplier is calculated by dividing the change in equilibrium expenditure by the change in investment. Here, the change in equilibrium expenditure is $3.5 trillion ($10.5 trillion - $7.0 trillion) resulting from a $1.5 trillion increase in investment. Therefore, the multiplier is $3.5 trillion / $1.5 trillion = 2.33.

A $15 Trillion Increase in Investment Leads Equilibrium Expenditure to Increase