The ratio of the increase in equilibrium real GDP to the increase in autonomous expenditure is called the
A)MPC.
B)multiplier.
C)MPS.
D)consumption function.

Question

Quizplus · Accepted Answer

The ratio of the increase in equilibrium real GDP to the increase in autonomous expenditure is called the multiplier. It represents the amount by which GDP will change in response to a change in autonomous expenditure, and is determined by the marginal propensity to consume (MPC), which represents the fraction of additional income that is spent. The MPS (marginal propensity to save) is also relevant, but it is not directly used in calculating the multiplier. The consumption function is a separate concept that relates consumption to disposable income.

The Ratio of the Increase in Equilibrium Real GDP to the Increase