Question

What is the concept of Expenditure Multiplier? Where does it start, and what is the end result (what factors would change in the process)?

Please insert a graph on your paper which shows how the multiplier actually works, and explain step by step of what is happening.

Please fully explain what happens to the multiplier when the aggregate demand is increased in Short Run; and explain what happens whens to the multiplier when the aggregate demand is increased in Long Run. Use the graphs available on your slides and explain step by step.   

we have to this from slide chapter 28 but how can ı send this file ı dont know

Answer 1

Expenditure Multiplier says that money spent by one person is income of other person which is spent on other goods which raise overall spending by more than what the first person spent. It can be calculated as = [1 / (1 - MPC)]. Rise in government spending in an economy will raise aggregate demand by multiple times of it.

In the below diagram, we can see that change in government spending leads to change in output where change in output is more than change in government spending due to expenditure multiplier.

When there is rise in aggregate demand in short run, consumers will spent their extra money earned on purchasing new goods which will raise marginal propensity to consume (MPC) which means that expensiture multiplier will be higher. In long run, a rise in aggregate demand will not raise purchasing by consumers by much because consumers will have all those goods on which consumers spent their money in short run. It will keep expenditure multiplier lower in long run.