EBK ECONOMICS TODAY
18th Edition
ISBN: 9780133920116
Author: Miller
Publisher: YUZU
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Question
Chapter 12, Problem 2FCT
To determine
To show:
Whether the multiplier changed due to slow growth of household spending on services resulting from a decline in net wealth following the financial meltdown.
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If a $20 increase in disposable income causes consumer
spending to rise by $4, what is the multiplier?
Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direct (positive) relationship or is it an inverse (negative) relationship? How does the size of the multiplier relate to the size of the MPC? The MPS? What is the logic of the multiplier-MPC relationship?
How is it possible for investment spending to increase even in a period in which the real interest rate rises? Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direct (positive) relationship or is it an inverse (negative) relationship? How does the size of the multiplier relate to the size of the MPC? The MPS? What is the logic of the multiplier-MPC relationship?
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- When price level is considered, the value of the multiplier will be less than that suggested by the over simplified version of multiplier. Why?arrow_forwardIs the mpc in the multiplier .75? only because multiplier is 1/(1-mpc) which would make sense for .25 1-.75=.25 however what is mps?arrow_forwardAccording to the multiplier concept when there is a change in any one of the components of total expenditures (C, I, G, or X-IM), a multiple impact upon: a) the rate of unemployment will occur. b) saving in the economy will occur. c) household expenditures will occur. d) income will occur.arrow_forward
- If a $568 increase in investment spending increases income by $568 in the first round of the multiplier process and by $483 in the second round, income will eventually increase by how much? Round to the nearest second decimal.arrow_forwardVery briefly summarize the relationships shown by (a) the consumption schedule, (b) the saving schedule, (c) the investment demand curve, and (d) the multiplier effect. Which of these relationships are direct (positive) relationships and which are inverse (negative) relationships? Why are consumption and saving in the United States greater today than they were a decade ago?arrow_forwardExplain in technical details why the Lagrange multiplier is currently used in analyzing the theory of the consumerarrow_forward
- Complete the statements and then calculate the change in consumption. The consumption function shows the relationship between consumption spending and The slope of the consumption function is the Changes in consumption can be predicted by multiplying the change in by the If the MPC = 0.80 and disposable income increases by $1000, then consumption will increase by what amount? Assume that there is no multiplier effect.arrow_forwardAssume that the parameters of a particular economy are as follows: MPC = 0.6, MPM = 0.1. What is the value of the multiplier?arrow_forwardFor the multiplier to be positive what condition must be satisfied?arrow_forward
- What is the multiplier effect? The multiplier is simply the ratio of the change in (r spending. Multiplying the initial change in spending by the multiplier gives you the amount of change in real GDP. G ) to the initial change in The multiplier effect can work in a positive or a negative direction. An initial increase in spending will result in a (smaller, larger) increase in real GDP, and an initial decrease in spending will result in a larger (increase, decrease ) in real GDP. The multiplier magnifies the fluctuations in economic activity initiated by changes in investment spending, net exports, government spending, or consumption spending. The multiplier is related to the marginal propensities. The MPC is (directly, inversely ) related to the size of the multiplier. The MPS is (directly, inversely ) related to the size of the multiplier. What will multiplier and MPS be when the MPC is .9, and 0.5? MPC MPS Multiplier .9 .5 How much of a change in GDP will result if firms increase…arrow_forwardThe multiplier process can occur when a decrease in investment spending… a) Increases household saving, causing consumers to buy more goods and services.b) Reduces household incomes, causing consumers to buy fewer goods and services.c) Increases household incomes, causing consumers to buy fewer goods and services.d) Reduces household incomes, causing consumers to buy more goods and servicesarrow_forward
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