Exhibit 9-8 Keynesian aggregate expenditures model

In Exhibit 9-8, the value of the spending multiplier is:
A) 3.
B) 4.
C) 5.
D) 2.

Name: Exhibit 9-8 Keynesian aggregate expenditures model In Exhibit 9-8, the value of the spending multiplier is: A) 3. B) 4. C) 5. D) 2.
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Question

Exhibit 9-8 Keynesian aggregate expenditures model
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In Exhibit 9-8, the value of the spending multiplier is:
A) 3. 
B) 4. 
C) 5. 
D) 2.

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/(1-MPC). In this model, the MPC is 0.75 (given as 3/4), so the spending multiplier is 1/(1-0.75) = 4. Therefore, the correct answer is B.

Exhibit 9-8 Keynesian Aggregate Expenditures Model