ECONOMICS
AGGREGATE SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Yes, I understand this from the notes
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No, I don’t understand this from the notes
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No, I don’t understand this, as I have not read the notes
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None of the above
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Detailed explanation-1: -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.
Detailed explanation-2: -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-3: -The multiplier effect occurs when an initial injection into the circular flow causes a bigger final increase in real national income. This injection of demand might come for example from a rise in exports, investment or government spending.
Detailed explanation-4: -The size of the multiplier depends on the percentage of deposits that banks are required to hold as reserves. When the reserve requirement decreases, the money supply reserve multiplier increases, and vice versa.