The Expenditure Multiplier
One of the key claims of Keynes was the existence of an “expenditure multiplier.” Remember from previous readings that Keynes said that aggregate demand was highly volatile, that even if the economy started at a level of GDP where equaled it’s potential so that the economy was at full employment, AD could shift abruptly causing a recessionary or inflationary gap. In the Keynesian model, not only did changes in spending cause GDP to change, but the change in GDP was more than proportionate than the initial change in autonomous spending. In other words, aggregate demand is powerful since a change in spending results in a multiplied change in GDP. This spending multiplier was part of the reasoning behind the Keynesian view that fiscal policy is a powerful tool for managing the economy.
Self Check: The Expenditure Multiplier
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
You’ll have more success on the Self Check if you’ve completed the Reading in this section.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.