ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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consumption is usually several times as large as savings
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a change in consumption can cause a larger change in investment
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an increase in investment can change GDP by a larger amount
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a decline in MPC can cause GDP to rise by a larger amount
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Detailed explanation-1: -The multiplier effect refers to the effect on national income and product of an exogenous increase in demand. For example, suppose that investment demand increases by one. Firms then produce to meet this demand. That the national product has increased means that the national income has increased.
Detailed explanation-2: -In terms of gross domestic product, the multiplier effect causes gains in total output to be greater than the change in spending that caused it. The term multiplier is usually used in reference to the relationship between government spending and total national income.
Detailed explanation-3: -The term investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy. It is rooted in the economic theories of John Maynard Keynes.
Detailed explanation-4: -In terms of gross domestic product, the multiplier effect causes changes in total output to be greater than the change in spending that caused it.
Detailed explanation-5: -The multiplier effect refers to any changes in consumer spending that result from any real GDP growth or contraction brought about by the use of fiscal policy. When government increases its spending, it stimulates aggregate demand, and causes some real GDP growth. That growth creates jobs, and more workers earn income.