a. What is the difference between aggregate expenditure and consumption
spending? Explain the difference between autonomous consumption and
induced consumption. What is the formula for the multiplier? Explain why this
formula is considered to be too simple.
b. Some economists have referred to the impact of government infrastructure
spending in Australia in the following way: ‘The investment multiplier will
provide a further boost to the Australian economy.’
i. What do the economists mean by the ‘investment multiplier’?
ii. Briefly explain what the economists means by saying that the investment
multiplier would ‘provide a further boost to the Australian economy’.
6
Fill in the missing values in the following table. Assume that the value of the MPC does
not change as real GDP changes.
i. What is the value of the MPC?
ii. What is the value of equilibrium real GDP?
12
Week 9 Ad & AS analysis
Sample Solution
