If an increase of $10 billion of investment results in an increase in equilibrium expenditure of $40 billion, the expenditure multiplier equals
A) $10 billion × $40 billion = $400 billion.
B) $40 billion - $10 billion = $30 billion.
C) $40 billion ÷ $10 billion = 4.
D) $10 billion ÷ $40 billion = 0.25.
E) $10 billion - $40 billion = -$30 billion.

Question

Quizplus · Accepted Answer

The expenditure multiplier is calculated as the change in equilibrium expenditure divided by the change in investment. In this case, the change in equilibrium expenditure is $40 billion and the change in investment is $10 billion. Therefore, the expenditure multiplier is $40 billion ÷ $10 billion = 4.

If an Increase of $10 Billion of Investment Results in an Increase