If planned aggregate expenditure in an economy can be written as:
PAE = 10,000 + 0.45Y,what is the income-expenditure multiplier in this economy?

Question

Quizplus · Accepted Answer

The income-expenditure multiplier is calculated as:

1 / (1 - MPC),

where MPC is the marginal propensity to consume. In this case, the MPC is equal to 0.45, so the multiplier is:

1 / (1 - 0.45) = 1 / 0.55 = 1.82

Therefore, the answer is D.

If Planned Aggregate Expenditure in an Economy Can Be Written