Homework Answers
6. Option 3. The interest rate
Explanation: The interest rate is the cost of the funds invested by the firms.
10. Option 3. Also rises
Explanation: Multiplier = 1/(1-MPC). So, when MPC rises, the denominator falls and the multiplier rises.
14. Option 4. 0.9
Explanation:
Here, when income rises by 500, spending rises by 450.
Marginal propensity to consume = change in spending/change in income = 450/500 = 0.9.
17. False
Explanation: Consumption fluctuates less than investment.
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