Understanding the Spending Multiplier

What are the two main actions you can take with found money?

• Invest it or donate it

• Lend it or borrow more

• Hide it or give it away

• Spend it or save it

What does the marginal propensity to consume represent?

• The total amount of money saved

• The percentage of income spent

• The amount of money invested

• The percentage of income donated

How does the spending multiplier affect the economy?

• It decreases the total money in circulation

• It multiplies the initial spending amount

• It reduces the need for government spending

• It stabilizes the currency value

What is the formula for calculating the spending multiplier?

• 1 divided by the marginal propensity to consume

• 1 divided by the marginal propensity to save

• Total spending divided by total saving

• Total income divided by total expenditure

If the government spends $100 million and the multiplier is 5, what is the total impact on the economy?

• $500 million

• $1 billion

• $200 million

• $100 million