What type of relationship exists between the marginal propensity to consume (MPC) and the multiplier? Explain why this relationship exists, giving a hypothetical numerical example to help support your answer
The MPC and the multiplier have a direct relationship. This occurs because the MPC measures the portion of a change in income that is spent, and as more of each additional dollar of income is spent a greater change in Real GDP occurs as a result. If people are reluctant to spend a change in their income (indicating a relatively low MPC), less overall spending would occur and fewer new goods and services would need to be produced.
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Use the following graph to answer the next question.
When output increases from Q1 and the price level decreases from P1, this change will ________.
A. be caused by a shift in the aggregate supply curve from AS1 to AS2 B. result in a movement along the aggregate demand curve from e3 to e1 C. result in a movement along the aggregate demand curve from e1 to e2 D. be caused by a shift in the aggregate supply curve from AS1 to AS3
Under the liquidity premium theory, a flat yield curve indicates that investors expect future short-term rates to
A) fall. B) rise. C) remain constant. D) either fall or remain constant.
If a professional association restricts membership and firms cannot employ nonassociation workers, the equilibrium wage will increase
a. True b. False
If consumer tastes are changing more in favor of the consumption of a particular good the:
a. market demand curve will shift to the left. b. consumer will move up a given demand curve, decreasing the quantity demanded. c. consumer would move down a given demand curve, decreasing the quantity demanded. d. consumer would move down a given demand curve, increasing the quantity demanded. e. market demand curve would shift to the right.