Question

Question 11 pts

In the real world the multiplier is smaller than predicted by the basic Keynesian model.

True

False

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Question 21 pts

The only source of leakage in the basic Keynesian multiplier is the:

Marginal propensity to save which is also 1 - MPC.

Marginal propensity to tax.

Marginal propensity to consume.

marginal propensity to import.

Answer 1

1. False

The Basic Keynesian model is based on the idea that both consumption and saving are directly related to disposable income.

The factor by which the return deriving from an expenditure exceeds the expenditure itself is multiplier.

APC(Average Propensity to Consume) is greater than the MPC (Marginal Propensity to Consume) in every case.

2. A..)) Marginal propensity to save which is also 1 - MPC.

1. Saving constitutes an important leakage to the process of income propagation. If the whole of the increment in income was to be spent on consumption (i.e., if MPC is one) then, ‘once- for-all’ increase in investment would go on creating additional consumption so that the full employment would ensure.

2. Debt

3. Imports

4. Price inflation

5. Hoarding

6. Purchase of stocks and securities