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:

Contribution Margin

The difference between a product's selling price and its total variable costs, which helps cover fixed costs and create profit.

Net Operating Income

The profit generated from a company's core business operations, excluding deductions for interest and taxes.

Contribution Approach

An accounting method where all variable costs are subtracted from sales to find the contribution margin, which is then used to cover fixed costs and profits.

Cost Formula

An equation used to predict costs, often relating total costs to the level of activity or volume of output.