The slope of the AE curve is .80. What is the expenditure multiplier? Everything else the same, by how much does equilibrium aggregate expenditure increase if
a. exports increase from $1.75 trillion to $2.25 trillion?
b. government expenditure on goods and services decrease from $2.0 trillion to $1.8 trillion?
c. investment increases from $1.2 trillion to $2.3 trillion?
The multiplier is 5.
a. The change in equilibrium aggregate expenditure equals the multiplier times the change in autonomous expenditure, which is $0.5 trillion. So the change in equilibrium expenditure is .
b. The change in equilibrium aggregate expenditure equals the multiplier times the change in autonomous expenditure, which is -$0.2 trillion, that is, government expenditures decrease by . So the change in equilibrium expenditure is 5 × (-$0.2 trillion) = -$1.0 billion.
c. The change in equilibrium aggregate expenditure equals the multiplier times the change in autonomous expenditure, which is $1.1 trillion. So the change in equilibrium expenditure is .
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