Exhibit 12-2
-In an economy characterized by the aggregate expenditure line in Exhibit 12-2, if government spending was independent of the level of real GDP what would the government spending multiplier be equal to?
A)0
B)1
C)2
D)3

Question

Exhibit 12-2 
-In an economy characterized by the aggregate expenditure line in Exhibit 12-2, if government spending was independent of the level of real GDP what would the government spending multiplier be equal to?
A)0 
B)1 
C)2 
D)3

Quizplus · Accepted Answer

The government spending multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. In a typical scenario, the multiplier is greater than 1. If the multiplier is 2, it implies that the MPC is 0.5, which is a common assumption in basic economic models.

Exhibit 12-2 -In an Economy Characterized by the Aggregate Expenditure Line in Expenditure