The Multiplier Model Implies That

question 34

Multiple Choice

The multiplier model implies that

• A) additional spending by the government will be a multiple of the tax rise needed to fund the spending.
• B) changes in autonomous spending will lead to an increase in national income which is greater than the initial increase in spending.
• C) changes in government spending will always lead to a proportionate increase in national income.
• D) there are no leakages from the circular flow of income.
• E) aggregate demand rises by a constant multiple of the change in consumption spending.

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Definitions:

Target Capital Structure

The capital structure that management strives to maintain as new capital is raised. An estimate of the structure that maximizes stock price.

Preferred Stock

A category of equity in a company that ranks above common stock in terms of claims on assets and profits, typically involving stable dividend payments.

Breakpoint

A volume discount in the sales charge or load of a mutual fund, offered to investors when investments exceed a specific dollar amount.

Capital

Funds or assets that are used for investing in business operations to generate profitable returns.