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Unformatted text preview: Expenditure Multiplier = a + mpc × Y + I
1 − mpc
1 − mpc ISLM Model = 1
1−mpc > 1 is the expenditure multiplier The larger mpc , the larger the expenditure multiplier. Suppose mpc = 0.5 and ∆I = $100, then ∆Y = $200. ∆Y
∆I I ↑→ Y AD /Y ↑→ C ↑ Y ↑→ C ↑ ... A change in planned investment spending I leads to an even
larger change in aggregate output. ⇔Y Y The Expenditure Multiplier Aggregate Output ...
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- Fall '08