The Multiplier Effect Indicates That

question 110

Multiple Choice

The multiplier effect indicates that

• A) a decline in the interest rate will cause a proportionately larger increase in investment.
• B) a change in spending will change aggregate income by a larger amount.
• C) a change in spending will increase aggregate income by the same amount.
• D) an increase in total income will generate a larger change in aggregate expenditures.

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Definitions:

Plowing Back

The reinvestment of earnings by a company back into its own operation or projects, also known as retained earnings.

ROE

Return on Equity, a financial ratio that measures the profitability of a business in relation to shareholder’s equity, indicating how well a company uses investments to generate earnings growth.

Dividend Growth Rate

The annualized percentage rate of growth of a company's dividend payments.

Constant Growth DDM

A valuation model for stocks that assumes dividends grow at a constant rate in perpetuity, used to calculate the present value of future dividend payments.