Business Cycle, Econ. Indicators, AE, Keynes, Multiplier

If there is an initial injection (e.g. a rise in investment) into the economy then the final increase in aggregate demand and real GDP will be greater. This reflects

• economic growth

• the multiplier effect

• keynesian economic policy

• accelerator

The proportion of any change in income that is spent rather than saved

• average propensity to spend

• income determinants

• marginal propensity to consume

• macroeconomic equilibrium

The rate of interest represents the cost of borrowing and the return on savings.

• T

• F

If the nominal interest rate is 7 percent and the inflation rate is 5 percent, the real interest rate is 12 percent

• T
• F

the greater the leakages (level of savings) the smaller the multiplier effect

• T

• F

Investment is the most stable component of GDP

• T
• F

The equation for the multiplier is:

• 1/MPC
• 1/1+MPC
• 1/MPS
• 1/1-MPS

If the MPC is .7 and business investment spending increase by $3 billion, GDP will

• increase by $10 billion

• increase by 2.1 billion

• decrease by $4.29 billion

• increase by $4.29 billion

The multiplier effect means that

• consumption is usually several times as large as savings

• a change in consumption can cause a larger change in investment

• an increase in investment can change output (GDP) by a larger amount

• a decline in MPC can cause output (GDP) to rise by a larger amount

What is the formula for the consumption function in a simple economy?

• AE=a+by+I
• C=a+by
• Y=a+by
• C=a+by+I