Which best describes why the multiplier exists? O When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way. O The multiplier exists because money spent today is always more valuable than money spent in the future, due to inflation and interest rates. When people see the government spending more money, they realize that the government thinks that prices are low; thus, they believe it is a good time to buy things. O When people see other people spending money, they know that the economy is about to improve, leading them to spend more money.

Which best describes why the multiplier exists? O When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way. O The multiplier exists because money spent today is always more valuable than money spent in the future, due to inflation and interest rates. When people see the government spending more money, they realize that the government thinks that prices are low; thus, they believe it is a good time to buy things. O When people see other people spending money, they know that the economy is about to improve, leading them to spend more money.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A3
. Consider the multiplier model. Compare two economies, which differ only in the share of credit-constrained households, but are otherwise identical. In which economy is the multiplier larger? Use a diagram to explain your answer. ii. Based on the previous reasoning, would you expect the size of the multiplier to be larger in expansions or recessions? Why?
True, False, or Uncertain: Consider a consumer choosing how much to consumer this year or next year. When the interest rate declines, consumption in the present increases? x O True: as the interest rate declines, consumption in this year increases because consumption this year becomes cheaper. False: True: as the interest rate declines, consumption this year declines because consumption in the present becomes more expensive. Uncertain: the effect on consumption in the present depends on the timing of income the timing of income. True: as the interest rate declines, consumption in this year increases because consumption this year becomes more expensive.
TRUE - OR - FALSE Government purchases and income taxes will have the same effect on the multiplier. O True O False
An article in the Wall Street Journal on the housing market states that "Steady job growth, rising wages and low interest rates have helped prop up housing demand." Source: Steven Russolillo, "Why the Housing Market is Getting Stronger," Wall Street Journal, May 22, 2016. Why do low interest rates increase the demand for housing? O A. The lower the interest rate, the less expensive it is for households to borrow money. O B. The lower the interest rate, the lower the price that sellers are willing to accept for their home. O C. When interest rates are low, the supply of housing increases. O D. Lower interest rates induce consumers to save more money for future home purchases. In the official government National Income and Product Accounts (NIPA), what component of investment includes purchases of new houses? O A. "Actual investment" OB. "Inventories" OC. "Plant and equipment" O D. "Residential"
The catch-up effect refers to the idea that Select one: a. Rich countries aid relatively poor countries so as to catch them up O b. None of the answers are correct Oc. Saving will always catch-up with investment spending O d. It is easier for a country to grow fast if it starts out relatively poor O e. If investment spending is low, increased saving will help investment to catch-up
If Y (the output level) = $1,200, consumption = $800, and government purchases! = $300, how much is saving and investment at equilibrium in a closed economy? Select one: O a. saving $0, investment = $0 O b. saving = $100, investment = $100 O c. saving = $200, investment = $100 Od. saving = $100, investment = $200
The Congressional Budget Office estimates the size of the government purchases multiplier to be O A. 0.1 - 0.6. O B. 0.3 - 1.5. OC. 0.5 - 2.5. O D. 2.0 - 3.0.
Suppose that Amazon decides to spend $10 million on a new distribution center. If the marginal propensity to consume is .8. then how much will GDP go up by once the multiplier process has played out? O $10 million O $20 million O $40 milion O $50 million
Consider the classical model. Suppose the government decreases taxes by some amount. What happens to public saving, private saving, and investment? Increase in public saving, decrease in private saving, and decrease in investment O b. Decrease in public saving, increase in private saving, and decrease in investment O c. None of the other choices are correct O d. Decrease in public saving, private saving, and investment
The graph below shows, the aggregate demand and supply for the economy of Etrusca. a. Draw AD2 on the graph below assuming an increase of $60 in aggregate demand. Plot only the endpoints of the curve below b. What is the new level of equilibrium GDP? c. What is the new equilibrium price level? d. How much is the reduction in GDP due to the crowding out effect?
A fall in mps raises the GDP multiplier. O True O False