1. The larger the mpe, the more repercussions or multiplier effects there are fr
ID: 1109666 • Letter: 1
Question
1. The larger the mpe, the more repercussions or multiplier effects there are from a change in expenditures or production and the smaller the multiplier.
True/ False?
2. When the U.S economy is temporarily producing above (past) its potential income/output level, which of the following is least likely to happen?
a. inventories will decline
b. prices will rise
c. there will be a shortage of labor and raw materials
d. production levels will continue to increase quite dramatically
3. Traditionally, the marginal propensity to expend (mpe) measures:
a. How much of a given income will be saved
b. How much expenditure will occur at equilibrium income
c. how much expenditures will change when income changes
d. what percentage of total income will go toward charity
4. Brazil experienced hyperinflation (inflation rate of 100% or more) in the 1990's. Ceteris parabus (other things equal), the expectations by citizens of Brazil of a worsening of the hyperinflation in the future would have a tendency to:
a. make the slope of the Brazilian AD Curve flatter
b. make the slope of the Brazilian AD Curve steeper
c. shift the Brazilian AD curve in to the left
d. shift the Brazilian AD curve out to the right
Explanation / Answer
1) false
reason higher the MPE higher the multiplier effects and higher the multiplier.
2 d. production levels will continue to increase quite dramatically
Reason when actual output exceeds the potential output then price will increase but fall in inventory , shortage of raw material and labor and production level decrease
3 ) c. how much expenditures will change when income changes
reason marginal propensity to expend concerned with rise in income and accordingly changes in consumption,
4) b. make the slope of the Brazilian AD Curve steeper
Reason other thing being the same demand curve would be stepper as no demand in future would be noticed.
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