Question

consider the aggregate expenditures (ae) model: if the multiplier is 4 and investment spending increases by $70, what impact will that have on the equilibrium aggregate expenditure?

Answer 1

In the aggregate expenditures (AE) model, the multiplier represents the magnitude of the impact of changes in autonomous expenditures (such as investment spending) on the equilibrium level of aggregate expenditure.

If the multiplier is 4 and investment spending increases by $70, this will lead to an increase in aggregate expenditure of 4 times that amount, or $70 * 4 = $280.

Therefore, the increase in investment spending will have a positive impact on the equilibrium level of aggregate expenditure, increasing it by $280.