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In real life, the operation of simple multiplier is affected by many leakages. Leakages in the multiplier arise out of the following reasons:(1) Saving: If all the income is spent on consumption, then every increase in investment will raise the level of income. But, if a large proportion of the income is kept as saving, it will certainly have different effect on the intensity of multiplier.(2) Debt Cancellation: If the people use a large proportion of their income in debt repayment, they will have smaller amount of income left for consumption. As a result, marginal propensity to consume falls and the value of multiplier also goes down.(3) Imports: If the imports of a country exceed its exports a large portion of the national income will go to foreigners. Consequently, the multiplier effect of this expenditure is transmitted abroad. In such a situation, any increase in the investment will not increase the level of income in the economy.(4) Price Inflation: When the economic reaches the full employment level or very close to it, every increase in investment will bring about a simultaneous increase in the price level. A large portion of incremental income will be spent in buying costly things; therefore, the intensity of multiplier becomes weak.(5) Liquidity preference: People keep a part of their money income in liquid form. Liquidity preference reduces the present level of consumption of the community; as a result, the multiplier loses its strength.
critically analyse the ways at which the govement of zimbabwe has put in place to address unequal employment opportunitiesbetween men andwomen
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Between 2007 and 2009 the U.S. economy experienced a severe recession. In an effort to stimulate the economy, the federal government passed a stimulus package. Explain the federal
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Bread is a related good to peanut butter: show on the graph of the market for peanut butter, the impact on the price and quantity from an increase in the price of bread.
HOW TO GET THE REVENUES AND EXPENDITURES AS A PERCENT OF GDP?
Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of real GDP demanded for ea
why is international trade important for South Africa?
Suppose that the economy is characterized by the following behavioral equations: C= 170 + 0.7YD I= 170 G= 150 T= 100 a. What does equilibrium output equal? Y=? b. What d
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