Which of the following would be most likely to improve the ...

[xroflmao]

Which of the following would be most likely to improve the standard of living of people in less-developed nations?
 a. The development of strong labor unions.
  b. An increase in foreign investment.
  c. An increase in the share of the population under 15 years of age.
  d. Higher tariffs and the imposition of other restraints designed to restrict international trade.

Question 2

When there is a shift in autonomous expenditure, why is there a multiple expansion of income and real GDP? Trace the multiplier effect through the first four rounds when there is an increase in autonomous expenditure of 40 billion and the marginal propensity to consume is 0.75.

[gcook]

Answer to Question 1

b

Answer to Question 2

There is a multiple expansion of income and real GDP because one person's spending becomes another person's income who, in turn, spends and creates more income. The initial increase in autonomous spending will create 40 billion in additional income. Resource owners will spend 75 percent (MPC = 0.75) of their gain in income or 30 billion. This creates 30 billion in income from which consumers will spend 22.5 billion. In turn, this 22.5 billion in new income creates 16.88 billion in new spending. In the next round 16.88 billion in new income will create 12.66 billion in new spending.