If planned aggregate expenditure rises by $20 billion and the marginal propensity to consume is 0.9,then the income-expenditure equilibrium increases by $18 billion.

Question

Quizplus · Accepted Answer

The income-expenditure equilibrium increases by more than $18 billion due to the multiplier effect, which is calculated as 1/(1-MPC). With an MPC of 0.9, the multiplier is 10, so the equilibrium increases by $200 billion ($20 billion x 10).

If Planned Aggregate Expenditure Rises by $20 Billion and the Marginal