Author Question: An increase in people's expected future disposable income ________ saving supply, and the supply of ... (Read 76 times)

awywial · **on:** Jun 29, 2018

An increase in people's expected future disposable income ________ saving supply, and the supply of loanable funds curve ________.

A) decreases; shifts rightward
B) does not change; does not shift
C) increases; shifts rightward
D) increases; shifts leftward
E) decreases; shifts leftward

Question 2

List and explain factors that determine the size of the expenditure multiplier in the expenditure model when prices are constant.

What will be an ideal response?

fur · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

E

Answer to Question 2

The size of the expenditure multiplier depends on three factors: the marginal propensity to consume, the marginal propensity to import, and the marginal income tax rate. The larger the marginal propensity to import and the larger the marginal tax rate, the smaller the multiplier. These two factors work to decrease the size of the multiplier because imports reduce spending on U.S. produced products and income taxes reduce the impact of a change in real GDP on consumption expenditure. On the other hand, the larger the marginal propensity to consume, the larger the multiplier.