Question

Which of the following represents the expenditure multiplier?

A. it is the factor by which a change in autonomous spending is multiplied to obtain the change in income

B. It is the ratio of income to consumption

C. It is the factor by which income is multiplied to obtain the change in aggregate spending

D. It is the ratio of the change in income divided by the change in consumption

Answer 1

The correct answer is 'Option A'.

The expenditure multiplier is the factor by which change in autonomous spending is multiplied to obtain the change in income.

The expenditure multiplier can be calculated as:

For example:

The change in GDP from the change in government expenditure can be calculated as:

So, the multiplier is the factor by which a change in government spending is multiplied to obtain the change in income.

Therefore, the correct answer is 'Option A'.