Question

according to one-period model of macroeconomics which of the following statements is correct about an economy engaging in a war financed by debt? group of answer choices output is increased so is consumption so that the spending multiplier is larger than one. output is increased but consumption is cut back so that the spending multiplier is positive but less than one. output stays the same and consumption is cut back so that the spending multiplier is zero. output is increased but consumption stays the same so that the spending multiplier is equal to one.

Answer 1

Option (b) for a response. In order to keep the expenditure multiplier from exceeding 1, output must increase while consumption must decrease.

Spending multiplier: What does it tell you?

An economic indicator of the impact that changes in government spending and investment have on a nation's Gross Domestic Product is the expenditure multiplier, often known as the fiscal multiplier.

When the multiplier is negative, what does that mean?

The negative multiplier effect happens when a spending leak or initial withdrawal from the circular flow has further impacts and a larger final decline in real GDP.

Why does multiplier exceed 1?

The rise in the national product indicates a rise in national income. Consumption demand rises as a result, and businesses produce to satisfy it. As a result, the increase in investment is greater than the increase in national income and product. There is a multiplier effect that exceeds one.

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