The Multiplier Principle Is Important Because It

question 98

Multiple Choice

The multiplier principle is important because it

• A) was central to economic theory before Keynes.
• B) implies that investment will help stabilize the economy.
• C) shows why small shifts in investment have a powerful influence on national income.
• D) illustrates why a small change in income causes a large change in saving.

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Definitions:

Prices and Wages

Refers to the levels of remuneration for labor and the cost of goods and services in an economy, which can impact inflation and purchasing power.

Natural Rate

The rate of a quantity, such as unemployment or interest, that prevails when the economy is in a long-term equilibrium.

Classical Dichotomy

The theoretical separation of nominal and real variables in classical economics, suggesting that changes in the money supply only affect nominal variables.

Inflation Rate

An upward movement in the overall price level of goods and services in an economy over time.