An Increase in Government Expenditure Has a Multiplier Effect on Aggregate

question 61

Multiple Choice

An increase in government expenditure has a multiplier effect on aggregate demand due to:

• A) the additional spending by consumers stimulated by the actual government expenditure.
• B) the negative slope of the consumption function.
• C) the fact that the marginal propensity to consume is larger than one.
• D) the autonomous nature of private consumption expenditure.

---

Definitions:

Replacement Cost

The cost to replace an asset of a company at the present time, according to its current worth.

ROE

Stands for Return on Equity, a financial ratio that measures the profitability of a company in relation to shareholders' equity.

Dividend Growth Rate

The annualized percentage rate of growth of a company's dividend payouts, indicating the company's long-term earnings growth potential and financial health.

Earnings

Net income of a business entity over a set time frame, indicating its financial performance.