Question

33. Given the following equation AE = 800 + .95 Y, what is the

expenditure multiplier?
a.20
b.4
c.5
d.17.5

Answer 1

The expenditure multiplier is 20 in the given equation AE = 800 + .95Y.

Step-by-step explanation:

The expenditure multiplier measures the change in equilibrium output resulting from a change in autonomous expenditure. It is calculated as: expenditure multiplier = 1 / (1 - marginal propensity to consume).

In the given equation AE = 800 + .95Y, the marginal propensity to consume is 0.95. Therefore, the expenditure multiplier would be 1 / (1 - 0.95) = 20.

So, the correct answer is a. 20.