Question

What is government expenditure multiplier?

• A. \( \frac{\Delta Y}{\Delta T} = \frac{-c}{1 - c} \)
• B. \( \frac{\Delta Y}{\Delta G} = \frac{1}{1 - c} \)
• C. One
• D. None of these

Hint:

The government expenditure multiplier shows how much national income changes for a given change in government spending.

Answer 1

The Correct Option is B

Step 1: Understanding the government expenditure multiplier.
The government expenditure multiplier measures the change in national income resulting from a change in government spending. It is calculated as \( \frac{\Delta Y}{\Delta G} \), where \( \Delta Y \) is the change in income and \( \Delta G \) is the change in government expenditure. The multiplier is \( \frac{1}{1 - c} \), where \( c \) is the marginal propensity to consume.

Step 2: Analyzing the options.
(A) \( \frac{\Delta Y}{\Delta T} = \frac{-c}{1 - c} \): This equation does not correctly represent the government expenditure multiplier. It refers to the impact of taxes, not government spending.
(B) \( \frac{\Delta Y}{\Delta G} = \frac{1}{1 - c} \): Correct. This is the correct formula for the government expenditure multiplier.
(C) One: This is incorrect, as the multiplier is not always one. It depends on the marginal propensity to consume.
(D) None of these: This is incorrect, as option (B) is the correct answer.

Step 3: Conclusion.
The correct answer is (B) \( \frac{\Delta Y}{\Delta G} = \frac{1}{1 - c} \), which represents the government expenditure multiplier.