Question

Question 4 If a $2000 increase in income leads to an $1600 increase in consumption expenditures, then the marginal propensity to consume is Not yet answered Select one: Marked out of 2.00 p Flag question a. 0.2 and the multiplier is 1.25. b. 0.2 and the multiplier is 1.25. C. 0.8 and the multiplier is 5. d. 0.8 and the multiplier is 8. O Question 5 The interest-rate effect is partially explained by the fact that a lower price level raises money demand. Not yet answered Select one: Marked out of 2.00 O True p Flag question O False

Answer 1

4. The correct answer is C. 0.8 and the multiplier is 5.

Reason we known MPC = ∆C/∆Y = 1600/2000 = 0.8

And multiplier(k) = 1/1-MPC = 1/ 1-0.8 = 5

5. False.

Because there is direct relation between the price level and Money Demand. It means when price level decreases the Money Demand decrease and vice versa.