Expenditure Multiplier in Economics

If withdrawals were instantaneously translated into expenditures, what would be the multiplier's size? What would be the level of autonomous expenditures?

The multiplier would be zero
Autonomous expenditures would be infinity.
The multiplier model would break down.

Final answer:

The expenditure multiplier in Keynesian economics indicates how a change in autonomous spending can cause a larger-than-expected change in real GDP. However, if withdrawals are instantaneously translated into expenditures, the multiplier model breaks down and neither the multiplier nor autonomous expenditures can be definitively calculated. The size of the multiplier is key in assessing the impact of fiscal policies.

Explanation:

The expenditure multiplier is a concept in Keynesian economics that asserts a change in autonomous spending leads to a more than proportionate change in real GDP. This multiplier effect indicates that an increase in expenditure causes a larger increase in the equilibrium output, signifying that one person's spending becomes another person's income, therefore leading to additional spending and additional income.

If withdrawals were instantaneously translated into expenditures, the multiplier model would break down. It would be impossible to calculate a definitive multiplier or the level of autonomous expenditures. Thus, it's essential to understand that the multiplier operates in both a positive and negative direction. The size of the multiplier is critical in discussions of the effectiveness of fiscal policies like stimulus packages, for example, the American Recovery and Reinvestment Act of 2009 implemented by the Obama administration.