Which of the Following Correctly Describes the Spending Multiplier

question 103

Multiple Choice

Which of the following correctly describes the spending multiplier?

• A) The initial change in consumption, investment, government spending, or net exports divided by the change in equilibrium GDP.
• B) An initial increase in aggregate expenditures divided by the equilibrium GDP.
• C) An initial increase in aggregate expenditures divided by the change in equilibrium GDP.
• D) The ratio of the change in real GDP to an initial change in any component of aggregate expenditures.

---

Definitions:

Remaining Life

The estimated duration for which an asset is expected to be economically useful or operational.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted for the investor's share of the investee’s profits or losses.

Retained Earnings

The portion of a company's profit that is held or retained and not paid out as dividends to shareholders, often used for reinvestment in the business or to pay down debt.

Intra-Entity Transfer

Transactions involving assets, services, or funds between divisions or units within the same company, impacting financial statements when aggregated.