The spending multiplier is defined as:
A) the ratio of the change in equilibrium real GDP to the initial change in spending.
B) the change in initial spending divided by the change in personal income.
C) 1 / (marginal propensity to consume).
D) 1 / (1 − marginal propensity to save).

Question

Quizplus · Accepted Answer

The spending multiplier is defined as the ratio of the change in equilibrium real GDP to the initial change in spending. Therefore, option A is the correct choice. The other options are not correct definitions of the spending multiplier.

The Spending Multiplier Is Defined As