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Aggregate expenditures model, Created in the middle of the great…

- - - - An initial change in spending can cause an ever greater change in real output through the multiplier effect and the size of the multiplier depends on the size of the marginal propensity to save in the economy
        
        The multiplier equation is
        Multiplier = change in real gdp/ initial change in spending
        Size of multiplier
        Multiplier = 1/ MPS
        
        In equilibrium C + Ig = GDP, so changes in either the consumption schedule or the investing schedule. The investing schedule is the main source of instability
        Changes in the expected rate of return on investment can increase or decrease investment spending resulting in a change in the aggregate expenditures schedule and real GDP
        The extent of the changes depends on the multiplier
        The graphs below illustrate this