One of the three reasons as to why the oversimplified multiplier formula overstates the multiplier is that it ignores price-level changes, which reduce the multiplier.

If the price level is 100 in one year and rises to 102 the next year, then the inflation rate is

A) 0.02 percent. B) 100 percent. C) 102 percent. D) 2.0 percent. E) unable to be determined without knowing potential GDP.

A budget deficit ________

A) may have stimulative effects on economic activity in the short run B) contributes to lower interest rates in the long run C) is likely to increase future productive capacity in the long run D) all of the above E) none of the above