What is the aggregate demand multiplier and why does it occur?
What will be an ideal response?
The aggregate demand multiplier is an effect that magnifies changes in expenditure plans. So, for example, if some component of expenditure such as investment increases, aggregate demand increases by more than the increase in investment. The aggregate demand multiplier exists because when aggregate demand increases, households' incomes increase. Then the increase in income results in an increase in consumption expenditure, which adds to the initial increase in aggregate demand.
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Suppose Canada has a population of 30 million people and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7%. If the current number of unemployed people is 1.4 million people, what can we conclude about Canada's economy?
A. The unemployment rate is above the natural rate of unemployment. B. The unemployment rate is below the natural rate of unemployment. C. There is cyclical unemployment present in the economy. D. There is no cyclical unemployment present in the economy.
In the above figure, the marginal product of labor is zero at point
A) a. B) c. C) e. D) f.
Suppose Karl divides his time between making birdhouses and growing artichokes. Karl's friend recently gave Karl some new woodworking tools that greatly reduced the amount of time it takes Karl to make each birdhouse, but the new tools had no impact on the amount of time it takes Karl to grow artichokes. Thus, the new tools ________ Karl's opportunity cost of growing artichokes.
A. had no effect on B. halved C. decreased D. increased
"Leaving money on the table" refers to the potential gains to be made when people act irrationally.
Answer the following statement true (T) or false (F)