The following question are based on the following diagram:

-From the diagram,one can infer that the
A) C + I + G line cannot change.
B) marginal propensity to save is 1.
C) multiplier is 2.5.
D) 45-degree line is unstable.
E) total intended spending always equals GDP.

Question

The following question are based on the following diagram:
 
-From the diagram,one can infer that the
A) C + I + G line cannot change. 
B) marginal propensity to save is 1. 
C) multiplier is 2.5. 
D) 45-degree line is unstable. 
E) total intended spending always equals GDP.

Quizplus · Accepted Answer

The diagram shows a Keynesian cross model which illustrates the relationship between aggregate expenditure (AE) and real GDP. The slope of the AE line represents the multiplier, which is given as 2.5 in this diagram. This means that a change in autonomous spending (C+I+G) will have a magnified effect on equilibrium GDP. Therefore, choice (C) is correct. Choices (A), (B), (D), and (E) are not supported by the diagram.

The Following Question Are Based on the Following Diagram