In Order to Simplify the Equation for the Multiplier to Its

question 35

Multiple Choice

In order to simplify the equation for the multiplier to its familiar, relatively simple form, we make use of the

• A)assumption that increases in government purchases have no effect on consumer spending.
• B)assumption that the feedback effects associated with changes in government purchases become negligible after two or three rounds of spending have occurred.
• C)empirical evidence that points to a value of aboutfor the MPC.
• D)fact that the multiplier effect is represented by an infinite geometric series.

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Definitions:

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition.

Trading Securities

Financial assets that are bought and sold for the purpose of generating profits from short-term fluctuations in price.

Unrealized Loss-Income

Gains or losses that have occurred on paper but are not yet realized through a transaction.

Fair Value Adjustment

Fair Value Adjustment refers to an accounting action that adjusts the reported value of an asset or liability to reflect its current market value.