When Money Is Spent on Goods and Services, Those That

question 73

Multiple Choice

When money is spent on goods and services, those that receive the money also spend some of it. The people receiving some of the twice-spent money will spend some of that, and so on. Economists call this chain reaction the multiplier effect. In a hypothetical isolated community, the local government begins the process by spending D dollars. Suppose that each recipient of spent money spends and saves of the money that he or she receives. The values c and s are called the marginal propensity to consume and the marginal propensity to save and, of course, . The number k = 1/s is called the multiplier. What is the multiplier if the marginal propensity to consume is ?

• A)3
• B)6
• C)2.5
• D)7

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Definitions:

Lipotropins

Hormones produced by the pituitary gland that are involved in lipid metabolism, including the mobilization of fatty acids from adipose tissue.

Somatotropins

Hormones that stimulate growth, cell reproduction, and cell regeneration in humans and other animals. Also known as growth hormones.

Gonadotropins

Gonadotropins are a group of hormones secreted by the pituitary gland that stimulate the activity of the ovaries and testes, including follicle-stimulating hormone (FSH) and luteinizing hormone (LH).

Osmoreceptors

Sensory receptors that detect changes in the osmotic pressure of bodily fluids, contributing to the regulation of body water balance.