The expenditure multiplier increases asGroup of answer choicesthe income of individuals decreases.the income of individuals increases.the savings of individuals decreases.the savings of individuals increases.
Question
The expenditure multiplier increases asGroup of answer choicesthe income of individuals decreases.the income of individuals increases.the savings of individuals decreases.the savings of individuals increases.
Solution
The expenditure multiplier increases as the savings of individuals decreases.
Here's why:
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The expenditure multiplier is a concept from macroeconomics that measures the impact of a change in total spending on the total output of an economy.
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When individuals save less, they spend more. This increase in spending stimulates the economy because businesses respond to increased sales by producing more.
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As businesses produce more, they also employ more resources, including labor. This increase in employment and wages leads to further increases in spending and output.
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Therefore, a decrease in savings (and corresponding increase in spending) can lead to a multiplied increase in economic output. Hence, the expenditure multiplier increases as the savings of individuals decreases.
Similar Questions
Which of the following events would cause a reduction in the size of the multiplier?Group of answer choicesan increase in the marginal propensity to consumean increase in the marginal propensity to savea reduction in taxesa reduction in government spending
The 'multiplier effect' is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures. a. autonomous; investment; induced b. induced; consumption; autonomous c. autonomous; consumption; induced d. induced; investment; autonomous
The ‘multiplier effect” means thatSelect one:a.A change in aggregate economic activity has an effect on spendingb.A change in spending has a greater effect on aggregate economic activityc.A change in spending has a proportionate effect on aggregate economic activityd.A change in spending has a smaller effect on aggregate economic activity
A change in aggregate demand equals the multiplier times the initial change in expenditures.
When the price of a normal good increases,Group of answer choicesboth the income and substitution effects encourage the consumer to purchase more of the good.both the income and substitution effects encourage the consumer to purchase less of the good.the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good.the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good.
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