Question

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy? bigger leakages smaller leakages increased trade decreased trade

Answer 1

Answer:

The correct answer is bigger leakages.

Explanation:

Leakages mean when money leaves or exits the economy, for instance, imports. When there is a big leakage or import that amount of money goes to the other countries. That part of income is not used for further production or investment in the economy. It makes the size of multiplier smaller.

When the multiplier is smaller a greater change in spending will lead to a smaller change in the overall economic activity and vice versa.