What measure can be used to determine the final impact of the change in investment spending on aggregate demand (AD)?

Choose 1 answer:
(A) The balanced budget multiplier
(B) The expenditure multiplier
(C) The money multiplier
(D) The tax multiplier
(E) No calculation is needed because AD will decrease by $\$ 6$ billion

Question

What measure can be used to determine the final impact of the change in investment spending on aggregate demand (AD)?

Choose 1 answer:
(A) The balanced budget multiplier
(B) The expenditure multiplier
(C) The money multiplier
(D) The tax multiplier
(E) No calculation is needed because AD will decrease by $\$ 6$ billion

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To determine the final impact of a change in investment spending on aggregate demand (AD), we need to use the concept of the multiplier effect. ‖ ‖ step 2 ⋮ The expenditure multiplier is the appropriate measure for this purpose. It is calculated as $ \frac{1}{1 - MPC} $ or $ \frac{1}{MPS} $, where MPC is the marginal propensity to consume and MPS is the marginal propensity to save. ‖ ‖ step 3 ⋮ The expenditure multiplier tells us how much aggregate demand will change in response to a change in investment spending. ‖ ∻Answer∻ ***B*** ∻Key Concept∻ ⚹Expenditure Multiplier⚹ ∻Explanation∻ ⚹The expenditure multiplier measures the effect of a change in investment spending on aggregate demand.⚹◊What is the formula for calculating the expenditure multiplier in economics?⍭ Generate me a similar question◊

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