The Spending Multiplier Is Defined As

question 58

Multiple Choice

The spending multiplier is defined as:

• A) the ratio of the change in equilibrium real GDP to the initial change in spending.
• B) the change in initial spending divided by the change in personal income.
• C) 1 / (marginal propensity to consume).
• D) 1 / (1 − marginal propensity to save).

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Definitions:

Elastic Demand

A situation where the demand for a product changes significantly in response to a change in price.

Short Run

A period in which at least one input is fixed and cannot be changed by the firm.

Substitutes

Products or services that can replace each other, where an increase in the price of one leads to an increase in demand for the other.

Elastic Demand

Elastic Demand occurs when the quantity demanded of a product changes significantly as its price changes.