The Expenditure Multiplier Equals

question 308

Multiple Choice

The expenditure multiplier equals

• A) APC - APS where APC is the average propensity to consume and APS is the average propensity to save.
• B) 1/(1 - slope of AE curve).
• C) MPC - MPS where MPC is the marginal propensity to consume and MPS is the marginal propensity to consume.
• D) 1/(slope of AE curve).

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Definitions:

Operating Income (EBIT)

Earnings Before Interest and Taxes, a measure of a company's profitability from its operations.

Dollar Sales

The total revenue generated from the sale of goods or services, measured in dollars.

Financial Leverage

The use of borrowed funds (debt) to amplify returns from an investment, which can increase the potential for profit as well as loss.

Variable Cost Ratio

The proportion of variable costs to total sales, indicating how variable costs change with sales levels.