If autonomous spending increases by $500 billion and, as a result, equilibrium real GDP increases by $2 trillion, then we know that the
A) MPC is greater than 1.
B) expenditure multiplier is 0.25.
C) expenditure multiplier is 4.0.
D) MPC equals 1.
E) expenditure multiplier is 2.0.

Question

Quizplus · Accepted Answer

The expenditure multiplier is calculated as the ratio of the change in equilibrium GDP to the change in autonomous spending. Therefore, the expenditure multiplier in this case is 2 trillion/500 billion = 4.0.

If Autonomous Spending Increases by $500 Billion And, as a Result