List and explain factors that determine the size of the expenditure multiplier in the expenditure model when prices are constant
What will be an ideal response?
The size of the expenditure multiplier depends on three factors: the marginal propensity to consume, the marginal propensity to import, and the marginal income tax rate. The larger the marginal propensity to import and the larger the marginal tax rate, the smaller the multiplier. These two factors work to decrease the size of the multiplier because imports reduce spending on U.S. produced products and income taxes reduce the impact of a change in real GDP on consumption expenditure. On the other hand, the larger the marginal propensity to consume, the larger the multiplier.
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Which of the following are equal to one another?
I. aggregate production II. aggregate expenditure III. aggregate income A) I equals II, but not III. B) I equals III, but not II. C) II equals III, but not I. D) I equals II equals III.
With overnight repos, __________ earn interest while sacrificing virtually no liquidity
A) corporations B) banks C) governments D) consumers