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

question 39

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. If the MPS is 0.4, then the multiplier is

• A) 1.33
• B) 2.5
• C) 5
• D) 15

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Definitions:

Elasticity Evidence

Data or information demonstrating the responsiveness of the quantity demanded or supplied of a good or service to changes in its price.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, opposite to a normal good.

Normal Good

A type of good for which demand increases as the income of individuals increases, indicating a direct relationship between income and demand.

Demand-Increasing Factor

Elements or conditions that lead to an increase in demand for a product or service, such as a rise in consumer income or a change in tastes.