Question #5509

MPC=0.4

Size of imports and taxes =0

What will be the size of aggregate expenditure multiplier?

Size of imports and taxes =0

What will be the size of aggregate expenditure multiplier?

Expert's answer

Aggregate expenditure multiplier = 1 / MPS, MPS = 1 - MPC, so we have:

aggregate expenditure multiplier = 1/ (1 - 0.4) = 5/3 ≈ 1.67

aggregate expenditure multiplier = 1/ (1 - 0.4) = 5/3 ≈ 1.67

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