Question

QUESTION 56

1. The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it

   	a.	reduces investment and thereby increases consumer spending.
   	b.	increases the money supply and thereby reduces interest rates.
   	c.	decreases income and thereby increases consumer spending.
   	d.	increases income and thereby increases consumer spending.

1 points   

QUESTION 57

1. At the end of World War II many European countries were rebuilding and so were eager to buy capital goods and had rising incomes. We would expect that the rebuilding increased aggregate demand in

   	a.	both the United States and Europe.
   	b.	the United States but not Europe.
   	c.	Europe, but not the United States.
   	d.	neither the United States, nor Europe.

Answer 1

56. Option D.

• The multiplier effect states that, any change in one variable will cause another related variable to change by a greater amount.
• When government enacts fiscal policy, there is an additional shift in aggregate demand.
• This is due to the multiplier effect because it increases income which thereby increases consumption spending within the economy.

57. Option A.

• Given that many European countries were rebuilding after World war II.
• This led to the purchase of various capital goods from U.S and hence it increased the income of various people in European countries.
• Hence, the aggregate demand increased in both United States and Europe.