Expenditure+Multiplier

Expenditure multiplier (also called the Keynesian multiplier or spending multiplier) is the effect on income of a change in autonomous expenditures. The formula for the multiplier is ∆income/∆autonomous expenditures, in other words 1/1-MPE. MPE is the marginal propensity to expend (the slope of AE). A multiplier of 2 means that whenever autonomous spending changes by any amount, income will change by 2 times as much. The higher the value of MPE, the larger the multiplier will be. Another way to look at the expenditure multiplier is as the ratio of change in the aggregate output to an autonomous change in aggregate expenditure. “The expenditure multiplier is a key component of Keynesian economics and the study of macroeconomics, illustrating how a relatively small change in expenditure like investment can trigger larger changes in aggregate output.” MPC and other induced expenditures are dependent variables of the value of the expenditure multiplier. An increase in autonomous spending causes an even greater increase in national income. For every additional $1 in autonomous spending, national income increases by X. Consumption spending and investment spending can increase the multiplier. References: John Sayre and Alan Morris, Principles of Macroeconomics, McGraw-Hill Ryerson, 2009, page 212-218. []
 * Expenditure Multiplier**