"A country's expenditure multiplier is constant over time." Explain whether the previous statement is correct or incorrect
What will be an ideal response?
The statement is incorrect. The expenditure multiplier changes as marginal income tax rates change, as the marginal propensity to import changes, and as the marginal propensity to consume changes over time.
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An example of a money flow in the circular flow diagram is
A) a student's payment of tuition to her university. B) the government's operation of the court system. C) the government's financing of the national debt. D) a firm's production of goods to sell to a foreign country. E) a farmer's use of land to grow wheat.
Net investment
A) equals gross investment plus depreciation. B) is the only measure of investment used to calculate GDP. C) equals gross investment minus depreciation. D) is equivalent to the existing capital stock in the economy.