Fretonia and Libstien are the same except Fretonia has a larger capital stock. Both countries undertake policies that raise their saving rates to the same higher level. We would expect that
a. both countries would have permanent increases in their growth rates, but the increase would initially be larger in Fretonia.
b. both countries would have permanent increases in their growth rates, but the increase would initially be smaller in Fretonia.
c. both countries would have temporary increases in their growth rates, but the increase would be larger in Fretonia.
d. both countries would have temporary increases in their growth rates, but the increase would be smaller in Fretonia.
d
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The multiplier effect occurs when:
A. spending by one person generates income for others and causes others to spend more too, increasing the impact of the initial spending on the economy. B. the level of consumer confidence increases more than predicted given a tax cut. C. increased spending by one or more individuals causes others to react and increase their savings. D. None of these is true.
Increases in aggregate demand
A. lead to increases in real interest and unemployment rates if there is considerable excess capacity in the economy. B. result only in inflation when the economy operates at its maximum productive capacity. C. may be caused by ever-greater downward pressures on prices and wages if reserve requirements are raised. D. may be caused by an increase in taxes. E. increase both inflation and the unemployment rates.