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Author Question: If the marginal propensity to save is 0.4, the multiplier is 2.5. Indicate whether the statement ... (Read 84 times)

Ebrown

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on: Jun 29, 2018
If the marginal propensity to save is 0.4, the multiplier is 2.5.
 
  Indicate whether the statement is true or false

Question 2

The problem typically during a recession is not that there is too little money, but too little spending. If the problem was too little money, what would be its cause? If the problem was too little spending, what could be its cause?
 
  What will be an ideal response?


yeungji

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

TRUE

Answer to Question 2

Too little money would be caused by too small of a money supply by the Federal Reserve. Too little spending could be caused by a variety of reasons such as a decrease in consumption spending by households because they become pessimistic about the future, a decrease in investment spending by firms because they lower their estimates of the future profitability of new factories and machinery, or a decrease in U.S. exports because a major trading partner is in a recession.


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