ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The tax multiplier
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The balanced budget multiplier
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The expenditure multiplier
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The money multiplier
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No calculation is needed because AD will decrease by $6 billion
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Detailed explanation-1: -The multiplier effect measures the impact that a change in investment will have on final economic output. Marginal propensity to save (MPS) refers to the proportion of a pay raise that a consumer saves rather than spends on immediate consumption.
Detailed explanation-2: -What measure can be used to determine the final impact on aggregate demand that occurs as a result of the change in lump-sum taxes? The tax multiplier. The tax multiplier is used to quantify how big of a change in AD will occur as a result of a change in lump sum taxes collected.
Detailed explanation-3: -The expenditure multiplier shows what impact a change in autonomous spending will have on total spending and aggregate demand in the economy. To find the expenditure multiplier, divide the final change in real GDP by the change in autonomous spending.
Detailed explanation-4: -Multiplier Effect The initial increase in investment causes a rise in output and so people gain more income, which is then spent causing a further rise in AD. With a strong multiplier effect, there may be a bigger increase in AD in the long-term.
Detailed explanation-5: -In effect, Multipliers effects measure the impact that a change in economic activity-like investment or spending-will have on the total economic output of something. This amplified effect is known as the multiplier.