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In real life, the operation of simple multiplier is affected by many leakages. Leakages in the multiplier arise out of the following reasons:(1) Saving: If all the income is spent on consumption, then every increase in investment will raise the level of income. But, if a large proportion of the income is kept as saving, it will certainly have different effect on the intensity of multiplier.(2) Debt Cancellation: If the people use a large proportion of their income in debt repayment, they will have smaller amount of income left for consumption. As a result, marginal propensity to consume falls and the value of multiplier also goes down.(3) Imports: If the imports of a country exceed its exports a large portion of the national income will go to foreigners. Consequently, the multiplier effect of this expenditure is transmitted abroad. In such a situation, any increase in the investment will not increase the level of income in the economy.(4) Price Inflation: When the economic reaches the full employment level or very close to it, every increase in investment will bring about a simultaneous increase in the price level. A large portion of incremental income will be spent in buying costly things; therefore, the intensity of multiplier becomes weak.(5) Liquidity preference: People keep a part of their money income in liquid form. Liquidity preference reduces the present level of consumption of the community; as a result, the multiplier loses its strength.
Compare Classical economic theory to Keynesian economic theory. Which approach, if either is the US currently applying and what have been the effects of such policies?
Given the above trade between the two countries, explain the trade effects on product prices, and factor incomes. Why do these effects occur?
1a. Show on the market for milk the effect of the introduction of BGH (bovine growth hormone). 1b. Show on the market for cheese the impact of what happened in the milk market.
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constructing a opportunity set and budget line for $15 lottery ticket and intending on buying a candy bar for $0.75 and peanut bag for $1.50
factors affecting national income
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