# Chapter 10 example #35677

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1. Personal saving is equal to:
C. Disposable income minus consumption
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2. The amount of consumption in an economy correlates:
B. Directly with the level of disposable income
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3. The consumption schedule shows the relationship of household consumption to the level of:
C. Disposable income
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4. When a consumption schedule is plotted as a straight line, the slope of the consumption line is:
D. Less than the slope of the 45ยบ line
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5. When the consumption schedule is plotted on a graph:
D. Consumption is on the vertical axis and disposable income is on the horizontal axis
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6. As disposable income decreases, consumption:
B. And saving both decrease
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7. Refer to the consumption schedule above. At income level 3, the amount of saving is represented by the line segment:
A. FG
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8. Refer to the consumption schedule above. At income level 3, the amount of consumption is represented by the line segment:
D. GH
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9. Refer to the consumption schedule above. At income level 1, the amount of saving is:
B. Negative
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10. Refer to the consumption schedule above. Disposable income equals consumption at point:
C. D
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11. Refer to the consumption schedule above. The break-even level of income would be at income level:
C. 2
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12. Refer to the consumption schedule above. As income rises from level 1 to level 2, the amount of:
A. Consumption increases and the amount of dissaving decreases
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13. Refer to the consumption schedule above. As income falls from level 3 to level 2, the amount of:
C. Consumption decreases and the amount of saving decreases
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14. An increase in disposable income:
C. Increases consumption by moving upward along a given consumption schedule
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15. The slope of the consumption schedule between two points on the schedule is:
A. The ratio of the change in consumption to the change in disposable income between those two points
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16. The fraction, or percentage, of total income which is consumed is called the:
D. Average propensity to consume
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17. As disposable income decreases, the:
A. Average propensity to consume increases
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18. If consumption increases while income remains the same, the average propensity to consume will:
C. Increase
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19. If there is a decrease in disposable income in an economy, then:
B. The APC rises and the APS falls
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20. If disposable income is \$900 billion when the average propensity to consume is 0.9, it can be concluded that:
D. Saving is \$90 billion
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21. The MPC can be defined as the:
A. Change in consumption divided by the change in income
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22. If a family's MPC is .7, it means that the family is:
B. Spending seven-tenths of any increment to its income
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23. If you know that an increase in a household's disposable income from \$35,000 to \$45,000 leads to an increase in consumption from \$30,000 to \$38,000, then you can conclude that the:
D. Marginal propensity to consume is .8
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24. Assume that an increase in a household's disposable income from \$40,000 to \$48,000 leads to an increase in consumption from \$35,000 to \$41,000, then the:
A. Slope of the consumption schedule is .75
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25. If Sara Thomas' disposable income increases from \$4,000 to \$4,500 and her level of saving increases from \$200 to \$325, it may be concluded that her marginal propensity to:
B. Consume is .75
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26. If the consumption schedule is a straight line, it can be concluded that the:
C. MPC is constant at various levels of income
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27. What would be the slope of the consumption schedule or consumption line for a given economy?
D. 1 - MPS
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28. If disposable income increases from \$912 to \$927 billion and MPC = 0.6, then consumption will increase by:
B. 9
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29. If disposable income decreases from \$1800 to \$1500 and MPC = 0.75, then saving will:
D. Decrease by \$75
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30. If the slope of a linear consumption schedule increases in a private, closed economy, then it can be concluded that the:
B. MPC has increased
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31. The relationship between the MPS and the MPC is such that:
C. 1 - MPC = MPS
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32. The saving schedule shows the relationship of saving of households to the level of:
C. Disposable income
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33. If households consume less at each level of disposable income, they are:
A. Saving more
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34. All of the following statements about consuming in excess of one's disposable income are true, except:
C. (APC + APS) will be less than 1 in this situation
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35. Dissaving occurs when:
B. Income is less than consumption
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36. Refer to the saving schedule above. Dissaving occurs when disposable income is:
B. Less than level 2
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37. Refer to the saving schedule above. The break-even income would be level:
C. 2
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38. Refer to the saving schedule above. As income falls from level 3 to level 2, the amount of:
C. Saving decreases
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39. The fraction, or percentage, of total income which is saved is called the:
A. Average propensity to save
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40. If the slope of the consumption schedule is .75, then the slope of the saving schedule is:
A. 0.25
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41. In an economy, for every \$10 million increase in disposable income, saving increases by \$2 million. It can be concluded that the:
B. Slope of the consumption schedule is .8
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42. In an economy, for every \$1600 decrease in income, spending falls by \$1200. It can be concluded that the:
D. Marginal propensity to save is .25
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43. When the marginal propensity to consume is less than 1, the:
D. Marginal propensity to save is positive
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44. With an MPS of .3, the MPC will be:
A. 1 - .3
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45. In a private closed economy, national income is \$4.5 trillion and savings equals \$6.4 billion. Based on this data, the marginal propensity to consume:
D. Cannot be calculated from the data given
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46. Which of the following may shift the consumption schedule upward?
B. A decrease in interest rates
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47. If the consumption schedule shifts downward, and the shift was not caused by a tax change, then the saving schedule:
C. Will shift upward
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48. Which of the following would shift the consumption schedule downward?
C. An increase in the probability of a recession
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49. An increase in household wealth that creates a wealth effect shifts the:
C. Consumption schedule upward and the saving schedule downward
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50. The so-called wealth effect will result in households:
A. Spending more and saving less
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51. When consumers decide to increase household debt, this action will:
A. Shift the consumption schedule upward
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52. Which of the following would shift the saving schedule upward?
A. A decrease in wealth
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53. The saving schedule would be shifted upward by:
D. A decrease in taxes
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54. If consumers expect prices to rise and shortages to occur in the future, then it will shift:
C. The consumption schedule upward and the saving schedule downward
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55. As the consumption and saving schedules relate to real GDP, an increase in taxes will shift:
B. Downward both the consumption and saving schedules
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56. What is the likely effect of a rise in real interest rates on consumption and saving in the best of circumstances?
C. The consumption schedule shifts downward slightly and the saving schedule shifts upward slightly
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57. A lower real interest rate typically induces consumers to:
C. Purchase more goods that are bought using credit
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58. A change in the amount saved due to a change in income is represented by a:
B. Movement along the saving schedule
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The table shows a consumption schedule. 59. Refer to the above data. At the \$300 level of disposable income:
D. There is a dissaving of \$10
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60. Refer to the above data. The marginal propensity to consume is:
C. .60
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61. Refer to the above data. If disposable income is \$550, we would expect consumption to be:
C. \$460
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62. Refer to the above data. If plotted on a graph, the slope of the consumption schedule would be:
D. .9
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64. Refer to the above data. At the \$320 billion level of disposable income, the average propensity to save is:
B. .075
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63. Refer to the above data. The marginal propensity to save in this economy is:
A. .1
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65. Refer to the above data. If consumption increases by \$10 billion at each level of disposable income, the marginal propensity to consume will:
C. Not change, but the average propensity to consume will change
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66. The graph above shows the relationship between consumption and income. Which of the following statements is correct?
C. The average propensity to consume at income level K is given by KM divided by KN
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67. Refer to the consumption schedule above. The marginal propensity to consume is represented by:
C. GE/AB
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68. Refer to the consumption schedule above. The average
C. EF/BF
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69. Refer to the consumption schedule above. If disposable income is \$42,000, then saving is:
D. \$6,000
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70. Refer to the consumption schedule above. The marginal propensity to consume is:
B. .75
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71. Refer to the consumption schedule above. If disposable income were \$34,000, then the average propensity to save
D. .12
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72. Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), line A2 shifts to A3 because of the so-called wealth effect, then in figure (B), line:
C. B2 will shift to B1
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73. Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), consumption increases along line A2 then in figure (B) there would be:
D. A movement up along line B2
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74. The Great Recession of 2007-2009 altered the prior behavior of consumers in the economy by:
B. Shifting the consumption schedule down
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75. The so-called Paradox of Thrift that became quite obvious in the Great Recession of 2007-2009 refers to all of the following, except:
C. In trying to spend less now, consumers will end up spending more later on
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76. Two basic determinants of investment spending are:
B. Expected returns and real interest rate
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77. An investment demand curve shows the varying amounts of investment that would be undertaken at various levels of:
D. Real interest rate
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78. Given the expected rate of return on all possible investment opportunities in the economy, a(n):
B. Decrease in the rate of interest will tend to increase the level of investment
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79. If the real interest rate increases:
C. There will be a movement upward along the investment demand curve
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80. Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs \$200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be \$250,000. The expected rate of return from this new computer software is:
C. 25 percent
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81. Assume there are no investment projects that will produce an expected rate of return of 8 percent or more. There are, however, \$2 billion worth of investment projects with an expected rate of return at 7 percent, an additional \$2 billion for every drop of the interest rate by 1 percent. If the real interest rate is 3 percent in this economy, the cumulative amount of investment at the 3 percent or higher rate of return is:
A. \$10 billion
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82. A firm invests in a new machine that costs \$2,000 a year but which is expected to produce an increase in total revenue of \$2,200 a year. The current real rate of interest is 8 percent. The firm should:
B. Undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest
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83. A firm invests in a new machine that costs \$5,000 a year but which is expected to produce an increase in total revenue of \$5,200 a year. The current real rate of interest is 7 percent. The firm should:
D. Not undertake the investment because the expected rate of return of 4 percent is less than the real rate of interest
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84. The nominal rate of interest is 8.5 percent and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should:
D. Undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest
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85. According to the cumulative investment table above:
C. \$40 billion worth of investments have expected rates of return between 20% and 22%
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86. According to the cumulative investment table above, if the real interest rate is 20%, then:
C. \$150 billion of investments will be undertaken
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87. The investment demand curve is drawn with the amount of investment on the:
C. Horizontal axis and the expected rate of return and interest rate on the vertical axis
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88. Refer to the above graph. Which of the following would shift the investment demand curve from ID2 to ID1?
C. Increasing operating costs for capital goods
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89. Refer to the above graph. Which of the following would shift the investment demand curve from ID2 to ID3?
D. Falling stock of capital resources while output is high
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90. Refer to the above graph. Which of the following would shift the investment demand curve from ID2 to ID1?
B. Increasing business taxes
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91. Refer to the above graph. Which of the following would shift the investment demand curve from ID2 to ID3?
C. A more rapid rate of technological progress
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92. Which of the following factors would decrease investment demand?
B. An increase in the cost of acquiring capital goods
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93. If businesses feel more optimistic about the state of the economy, then this change is likely to:
D. Shift the investment demand curve to the right
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94. The investment demand curve will shift to the left as the result of:
A. Business pessimism about future economic conditions
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95. The following factors help explain the instability of investment, except:
D. Purchases of capital goods are usually nondiscretionary and cannot be postponed
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96. The variability of business profits:
A. Helps explain the instability of investments over time
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97. Which factor explains the variability of investment?
B. The durability of capital goods
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98. During the Great Recession of 2007-2009, the investment demand curve shifted:
C. Left because of declines in expected returns
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99. The multiplier effect relates:
D. Changes in spending to changes in real GDP
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100. The multiplier can be calculated by dividing:
B. The change in real GDP by the initial change in spending
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101. The simple multiplier formula assumes the following, except:
B. Firms will raise prices as buyers buy more of their output
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102. Generally speaking, the greater the MPS, the:
A. Smaller would be the increase in income which results from an increase in consumption spending
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103. If the MPC is .75, the multiplier will be:
D. 4
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104. In a closed, private economy, income is \$50 billion and consumption is \$40 billion. When income rises by 10 percent, consumption rises by 9 percent. The MPS over the relevant income range is:
B. 0.28 and the multiplier is 3.57
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105. If, in an economy, a \$200 billion increase in consumption spending creates \$200 billion of new income in the first round of the multiplier process and \$160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively:
A. 0.8 and 5.0
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106. Assume the marginal propensity to consume is 0.8. If consumer spending increases by \$20 billion, then real GDP will:
A. Increase by \$100 billion
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107. Assume that MPS is 0.4. If spending increases by \$8 billion, then real GDP will increase by:
D. \$20 billion
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108. Refer to the above table. The marginal propensity to consume is:
B. .75
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109. Refer to the above table. The change in income in round two will be:
C. \$3.75
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110. Refer to the above table. The total change in income resulting from the initial change in investment will be:
D. \$20
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111. Refer to the above table. The total change in consumption resulting from the initial change in investment will be:
C. \$15
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112. Refer to the above table. The multiplier in this economy is:
C. 4
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113. In general, the steeper the consumption schedule the:
D. Larger is the multiplier
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114. An increase in spending of \$25 billion increases real GDP from \$600 billion to \$700 billion. The marginal propensity to consume must be:
C. 0.75 and the multiplier is 4
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115. The value of the multiplier is likely to fall if there is a fall in:
D. The marginal propensity to consume
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116. If the MPC is 0.8, what change in investment spending is required to reduce total income by \$60 billion?
A. \$12 billion
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117. An \$18 billion increase in spending creates \$18 billion of new income in the first round of the multiplier process and \$13.5 billion in the second round. The multiplier in the economy is:
C. 4
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118. Which statement about the multiplier is correct?
D. If an \$80 billion increase in spending creates \$80 billion of new income in the first round of the multiplier process and \$60 billion in the second round, the multiplier in the economy is 4
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119. If households in the economy save more of any extra income that they earn, then the multiplier effect will: