Briefly discuss the relationship between leakages and the size of the multiplier
What will be an ideal response?
The fewer leakages out of the circular flow will increase the size of the multiplier. Thus, if the marginal propensities to consume and invest increase or the marginal propensity to import decreases, the slope of the IS curve will decrease and the IS curve will be flatter.
You might also like to view...
In the figure above, in the long run what happens if the Fed increases the quantity of money by 5 percent?
A) The value of money rises by 5 percent. B) The nominal interest rate rises by 5 percent. C) The price level rises by 5 percent and the LRMD shifts leftward. D) The value of money falls by 5 percent and there will be a movement down along the LRMD curve. E) The real interest rate falls and the LRMD curve shifts rightward.
If, after she buys a car with air bags, Maria Andretti starts to drive recklessly, that would be an illustration of: a. the moral hazard problem
b. the free rider problem. c. the adverse selection problem. d. the "lemon" problem.