Multiplier: Replenishment of Business Inventories

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  Inventories pile up. f. Calculate the multiplier. Solution: The multiplier is 2.5. The multiplier = 1 / (1 - g), Where: g is the slope of AE = 0.6 (Calculated in part (a ) The multiplier is therefore = 1/(1 - 0.6) = 2.5.

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  Calculate the multiplier. Solution: The multiplier = 1/(1 - g) where g is the slope of AE = b(1-t)-m = 0.6 (1-0) - 0.15 = 0.45. The multiplier = 1/(1 - 0.45) = 1.81 This solution details how to solve an aggregate expenditure problem.

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