As the Savings Rate in the Private Sector Rises

question 53

Multiple Choice

As the savings rate in the private sector rises:

• A) the government spending multiplier will also rise.
• B) aggregate demand will be less responsive to changes in fiscal policy.
• C) increases in government spending become a more effective means of stimulating aggregate demand.
• D) the crowding out effect will have more of a negative effect on aggregate demand.

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Definitions:

Present Value

The today's worth of future money or cash flow sequences, when a certain rate of return is applied.

Discount Rate

In finance, the discount rate is the interest rate used to determine the present value of future cash flows.

Present Value

A future sum of money or cash flows' value at present, applying a specific rate of return.

Compound Interest

Compound interest is the addition of interest to the principal sum of a loan or deposit, where interest in the next period is then earned on the principal sum plus previously accumulated interest.