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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.
Does a firm's price equal marginal cost in the short run, in the long run, or both? Explain.
In 2007, based upon the Survey of Household Spending of 2005, Statistics Canada announced the following weights for the major spending categories tracked by the CPI.
Q. Demand for money for AS-AD model? The money market The demand for money depends negatively on R,positively on Y and positively on P in AS-AD model
The demand function for Newton's Donuts has been estimated as follows: Qx = -14 - 54Px + 45Py + 0.62Ax where Qx represents thousands of donuts; Px is the price per donut; Py
circular flow of national income?
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The demand curve for product X is given by QXd = 340 - 4PX.\ a) How much consumer surplus do consumers receive when Px = $45? b) How much consumer surplus do consumers receiv
How would I solve and graph this problem C=$1 (trillion)+.80Yd
Determine the categories of finished goods Finished goods in the goods market are divided into 4 categories: private consumption going to private sector, public consumption for
a. State concisely, in your own words, the essence i.of what GDP measures and ii.what GDP doesnot measure. b. Stocks and bonds issued by firms comprise the "Investment" co
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