The Multiplier Principle Indicates That If Business Decision Makers Become

question 84

Multiple Choice

The multiplier principle indicates that if business decision makers become more optimistic about the future and,as a result,increase their investment expenditures by $50 billion,real GDP

• A)will increase by less than $50 billion if the economy was initially operating well below capacity.
• B)will increase by more than $50 billion if the economy was initially operating well below capacity.
• C)will increase by more than $50 billion if the economy was initially operating at full-employment capacity.
• D)will decline if the marginal propensity to consume is less than 1.

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Definitions:

Price Level

A measure of the average prices of goods and services in an economy, indicating the purchasing power of the currency and the inflation rate.

Unemployment

The situation where individuals who are capable of working and are seeking work are unable to find employment.

Classical Notion

An economic theory advocating for free markets, competition, and minimal government intervention in the economy.

Monetary Neutrality

The proposition that changes in the money supply do not affect real variables.