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

question 186

Multiple Choice

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

• A) 1 ÷ (1 - MPS) where MPS = marginal propensity to save
• B) 1 ÷ MPC where MPC = marginal propensity to consume
• C) 1 ÷ MPS where MPS = marginal propensity to save
• D) MPC ÷ MPS ÷ ∆Y

---

Definitions:

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, used in the discounting of future cash flows to understand their value in present terms.

Annual Payment

The amount of money that is paid once every year, either as an obligation, such as a loan repayment, or as part of a periodic agreement.

Installment Loan

A type of loan that is repaid over time with a set number of scheduled payments.

Annual Interest

The amount of interest paid or earned over a one-year period.