Assume That in a Particular Economy,MPC = 0

question 66

Multiple Choice

Assume that in a particular economy,MPC = 0.6 and the MPM = 0.2.What is the value of the multiplier?

• A)0.6.
• B)1.82.
• C)1.67.
• D)2.
• E)5.

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Definitions:

Paradox Of Thrift

The economic theory that personal savings can be detrimental to overall economic growth if too high, as they may reduce overall demand.

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A severe global economic recession that occurred from late 2007 through mid-2009, characterized by widespread financial crisis, high unemployment, and significant drops in the economic activity.

High Inflation

A situation where prices for goods and services rise rapidly over a period, eroding purchasing power and potentially destabilizing the economy.

Crowding-Out Effect

Large federal budget deficits are financed by Treasury borrowing, which then crowds private borrowers out of financial markets and drives up interest rates.