Question 1
In practice, the actual size of the multiplier is about
◦ 1.
◦ 1.4.
◦ 2.
◦ 4.
Question 2
Related to the
Economics in Practice on p. 476: According to the "paradox of thrift," as individuals increase their saving
◦ income in the economy increases because there is more money available for firms to invest.
◦ income in the economy increases because interest rates will fall and the economy will expand.
◦ income in the economy will remain constant because the change in consumption equals the change in saving.
◦ income in the economy will fall because the decreased consumption that results from increased saving causes the economy to contract.