Assume That the Marginal Propensity to Expend Is 0

question 29

Essay

Assume that the marginal propensity to expend is 0.75 and therefore the multiplier is 4.According to the multiplier model,an increase in autonomous exports of 100 would raise the equilibrium level of income by 400.Explain how the multiplier process amplifies the initial shift in autonomous expenditures.

---

Definitions:

Bad Debt Expense

An expense reported on the income statement, representing the amount of non-collectible accounts receivable during a period.

Direct Write-off Method

An accounting method where bad debts are expensed only when they are deemed uncollectible.

Allowance Account

An account used to record adjustments for potential future losses or defaults on receivables, essentially reducing the value of accounts receivable to a more realistic figure.

Accounts Receivable

Debts incurred by customers to a company for using or obtaining its goods or services without making immediate payment.