Let AE = Aggregate Expenditures, C = Consumption, I_P =

question 36

Multiple Choice

Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, JG =Government Purchases. Consider a simple aggregate expenditures model, where
JAE = C + I_P + G, and all components of aggregate expenditures except consumption are autonomous. In this model, the multiplier is found using the formula

• A) ∆Y* ÷ initial ∆AE where Y* = equilibrium real GDP by the ∆ = change in, AE = aggregate expenditures.
• B) ∆AE ÷ ∆Y*.
• C) ∆Y* * MPC where MPC = marginal propensity to consume.
• D) 1 ÷ MPC.

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