A . What is the income multiplier? b. How will the income multiplier change if the marginal propensity to save increases? Explain
a . The income multiplier measures the multiple by which income changes as a result of a change in
aggregate expenditure.
b. It will decrease, because an increase in MPS means that the MPC must fall. Since the income
multiplier is 1/1-MPC, a fall in MPC decreases the value of the multiplier. As a result, a change in
aggregate expenditure will have a smaller effect on national income.
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Which of the following is a major problem with deflation?
A) Money loses value so rapidly that economic agents will be reluctant to hold money. B) Economic agents tend to put off purchases in anticipation of lower prices for goods and services, leading to a downward spiral in economic activity. C) Low prices for goods and services tend to result in massive shortages in most markets. D) Money supply cannot keep pace with consumption spending.
Refer to Table 4-8. If a minimum wage of $9.50 an hour is mandated, what is the quantity of labor supplied?
A) 390,000 B) 380,000 C) 370,000 D) 340,000