Which of the Following Would Make the Spending Multiplier Larger

question 58

Multiple Choice

Which of the following would make the spending multiplier larger?

• A) A real exchange rate depreciation.
• B) A larger marginal propensity to import.
• C) A smaller marginal propensity to save.
• D) A real exchange rate appreciation.
• E) A small initial trade deficit.

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Definitions:

Efficient Level

Refers to the point at which a system, process, or economy operates at maximum productivity with minimal waste and expense.

External Costs

Costs that are not borne by the producer or consumer of a good or service, but by society as a whole, such as pollution.

Negative Externality

A cost that affects someone who did not choose to incur that cost or participate in the action causing it, often seen in pollution where the public pays the price for private industry actions.

MSC (Marginal Social Cost)

The complete expense incurred by society for the production of one more unit of a good or service, encompassing both individual costs and any external effects.