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Author Question: Briefly describe how imports and taxes affect the size of the expenditure multiplier. What will ... (Read 96 times)

luvbio

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on: Jun 29, 2018
Briefly describe how imports and taxes affect the size of the expenditure multiplier.
 
  What will be an ideal response?

Question 2

A decrease in wealth leads to a
 
  A) downward movement along the supply of loanable funds curve.
  B) rightward shift of the demand for loanable funds curve.
  C) leftward shift of the demand for loanable funds curve.
  D) rightward shift of the supply of loanable funds curve.
  E) leftward shift of the supply of loanable funds curve.


courtney_bruh

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Both imports and taxes make the expenditure multiplier smaller. When the marginal propensity to import is larger, more of the induced consumption expenditure goes towards foreign goods, which have no effect on domestic production or income. When the tax rate is higher, more of the induced change in income goes towards taxes, leaving less available for spending.

Answer to Question 2

D


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