The Figure Above Shows Two Aggregate Expenditure Lines

question 28

Multiple Choice

The figure above shows two aggregate expenditure lines.
-In the figure above, if the marginal propensity to import increased, the aggregate expenditure lines would ________ and the multiplier would ________ in value.

• A) become less steep; fall
• B) become less steep; rise
• C) not change; fall
• D) become steeper; rise
• E) not change; rise

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Definitions:

Basket Of Goods

A set of products and services, considered a representative sample, used to measure the change in overall price levels over time, such as in the calculation of inflation.

Purchasing-Power Parity

An economic theory that states that the exchange rate between two currencies is equal to the ratio of the currencies' respective purchasing powers.

Inflation

A rise in the general level of prices of goods and services in an economy over a period of time, eroding purchasing power.

Depreciate

A decrease in the value of an asset over time, often due to wear and tear or obsolescence.