The Spending Multiplier Is the Ratio of the Change in Real

question 20

Multiple Choice

The spending multiplier is the ratio of the change in real GDP to

• A)a shift in the expenditure line.
• B)a movement along the expenditure line.
• C)a shift in the 45-degree line.
• D)a change in marginal propensity to consume.
• E)a change in potential GDP.

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Definitions:

Large Banks

Financial institutions with a significant amount of total assets, offering a wide range of financial services.

Small Banks

Financial institutions with a smaller asset base and local focus providing banking services to individuals and businesses in their communities.

Primary Reserves

Funds that financial institutions must hold in physical form, such as cash in vaults or deposits with central banks, as a measure of liquidity and financial stability.

Secondary Reserves

Liquid assets held by financial institutions as backup funds for unforeseen needs, not directly utilized in lending or investment.