Explain why the expenditure multiplier is greater than 1
What will be an ideal response?
The expenditure multiplier is greater than 1 because increases in real GDP induce further increases in expenditure. For instance, suppose Intel spends $500 million building a new factory. As a result, the disposable income of the workers constructing the factory increases. With the increase in their disposable income, these workers increase their consumption expenditure. Perhaps they all purchase new Ford SUVs. Ford must employ additional workers to build these SUVs, and so these workers' incomes increase. Possibly the Ford workers all buy new stoves. Hence the initial increase in Intel's investment has induced additional consumption expenditure upon SUVs and stoves. And the process won't stop with the stoves because the workers who make the stoves will increase their consumption expenditure. All of the added consumption expenditure makes the expenditure multiplier greater than 1.
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In which of the following cases does the tragedy of the commons occur? I. Cattle grazing on private ranches. II. Catching lobsters off the coast of Florida. III. Raising salmon on salmon farms. IV. Using legal services provided by the courts
A) I only B) II only C) II and III only D) I and IV only
The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the
A) demand curve for imported champagne is horizontal. B) demand curve is downward sloping and the supply curve is upward sloping. C) demand curve for imported champagne is vertical. D) supply curve for imported champagne is vertical.
A competitive equilibrium is Pareto-efficient because at the competitive equilibrium,
A) prices have been allowed to adjust. B) there are no further gains from trade. C) the final outcome is different from the original inefficient endowment. D) all members of society can be made better off.
Suppose that Amanda receives a pay increase. We would expect
a. to observe Amanda moving down and to the right along her given demand curve. b. Amanda's demand for inferior goods to decrease. c. Amanda's demand for each of two goods that are complements to increase. d. Amanda's demand for normal goods to decrease.