uestion 5 1 point If you spend 100 and the MPC is 09 how muc

uestion 5 (1 point) If you spend $100 and the MPC is 0.9, how much spending will this $100 generate in the economy? a) $250 b) $100 c) $1,000 d) $500

Solution

5) Option C is correct

Multiplier =1/1-mpc

Multiplier =1/1-0.9=1/0.10=10

$100 will generate spending of 10*100=$1000

6) option b is correct

investment spending is more volatile because it depends on various factors such interest rate ,business expectations certain times interest rates are very volatile so investment spending is volatile and if there is optimism in business expectation investment spending will be more and if there is pessimism in business expectation investment spending will be less.

15) Option C is correct

Multiplier can work in both direction forward as well as backward if government increase its spending then multiplier will work to increase gdp multiple fold than increase in government expenditure but if government cuts its expenditure the income of people will decrease and hence they will spend less and due to this gdp can decrease.