1. The multiplier in the goods market is the ratio of the initial change in marg

Question

1. The multiplier in the goods market is the ratio of the initial change in marginal propensity to consume to the change in final output. True False 2. If the final change in output for the economy as a whole is $119.6 billion, unemployment is 6.2% and there was an increase in government spending of $46 billion, what is the value of the multiplier? 3. Budget deficit Which of the following would not increase the budget deficit? A. a decrease in investment income B. an increase in indirect taxes C. an increase in the current account deficit D. an increase in transfer payments

Explanation / Answer

False. Multiplier = Change in GDP / 1 - MPC Multiplier = 119.6 / 46 => 2.6 B. an increase in indirect taxes. This increases tax revenue and thus decreases budget deficit.

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