Question

Which statement is the most accurate description of the expenditure multiplier? For any change in aggregate expenditure, GDP changes by a smaller amount. For any change in aggregate expenditure, GDP changes by an equal amount. For any change in aggregate expenditure, GDP changes by a greater amount.

Answer 1

Expenditure multiplier indicates the number of times the GDP increases for a unit increase in consumption expenditure

That is, as long as the MPC<1, the expenditure multiplier is greater than 1 and hence, per unit rise in consumption expenditure, the aggregate expenditure or GDP increases more than a unit.

It is to be noted that, the expenditure multiplier gives a relation between consumption expenditure and GDP(=aggregate expenditure)

Ans: For any change in aggregate expenditure, GDP changes by an equal amount