The fraction of additional income that households will spend on consumption is called;
(a) The marginal propensity to consume;
(b) The average propensity to consume;
(c) The Keynesian multiplier;
(d) All of the above.
Answer: (a) The marginal propensity to consume;
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Identify the “oversimplified multiplier formula.”
A. Multiplier = 1 divided by (1 ? change in GDP) B. Multiplier = 1 divided by (1 ? marginal propensity to consume) C. Multiplier = 1 divided by (1 ? marginal propensity to save) D. Multiplier = 1 divided by (1 ? rate of inflation)
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a. rate of investment. b. price of credit. c. rate of return on investment in capital goods. d. expected rate of inflation.
If Real GDP increases at an annual rate of 4 percent and velocity increases at a rate of 1 percent per year, then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at
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