Exhibit 11-2

-Refer to the graph in the exhibit.Consider an economy characterized by the aggregate expenditure.Suppose government spending is independent of the level of real GDP.What is the government spending multiplier?
A) 0
B) 1
C) 2
D) 3

Question

Exhibit 11-2
 
-Refer to the graph in the exhibit.Consider an economy characterized by the aggregate expenditure.Suppose government spending is independent of the level of real GDP.What is the government spending multiplier?  
A) 0 
B) 1 
C) 2 
D) 3

Quizplus · Accepted Answer

The government spending multiplier is the reciprocal of the marginal propensity to save (MPS). In this case, the MPS is equal to 0.5 (as shown by the slope of the saving line). Therefore, the multiplier is 1/MPS = 1/0.5 = 2.

Exhibit 11-2 -Refer to the Graph in the Exhibit.Consider an Economy Characterized