What are two key facts that serve as the rationale for the multiplier effect?
What will be an ideal response?
First, the economy has continuous flows of expenditures and income in which income received by one person comes from money spent by another person who in turn receives income from the spending of another person, and so forth. Second, any change in income will cause both consumption and saving to vary in the same direction as the initial change in income, and by a fraction of that change. The fraction of the change in income that is spent is called the marginal propensity to consume (MPC). The fraction of the change in income that is saved is called the marginal propensity to save (MPS). The significance of the multiplier is that a small change in investment plans or consumption-saving plans can trigger a much larger change in the equilibrium level of GDP.
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If the dollar to euro exchange rate moves from 1.1 to 0.9 dollars per euro, then the dollar has ________ and the euro has ________
A) appreciated; depreciated B) appreciated; appreciated C) depreciated; depreciated D) depreciated; appreciated
Unanticipated inflation generally hurts borrowers and benefits lenders
a. True b. False Indicate whether the statement is true or false
When entry of new firms decreases input prices in an industry, it is a(n)
a. increasing cost industry. b. decreasing cost industry. c. constant cost industry. d. input elastic industry.
The opportunity to increase profitability is the primary reason that firms decide to export.
a. true b. false