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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.
TRADE policy: We are now in a position to sum up our analysis of India's trade policy. First, India's trade policy has always been very intricately related to India's basic de
Imagine a firm with the same cost structure but in each of the four market structures: Competitive, Monopolistically Competitive, Oligopoly, and a Monopoly. Using the concepts of c
what is Y = C(Y,T) + G + I(r)
Some charge that the Crisis of 2008 was caused by the "greed" of Wall Street firms and other bankers. Do you agree with this view? Do you think there was more greed on Wall Street
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SUppose nominal GDP increases from 5.8 trillion to 6 trillion. The GDP deflator rose over that same year by 3.9 percent. By what percent does the real output increase?
What are the effects of neutral inflation
what does phillip curve signify? how do you reconcile the difference in the shap of the curve in the short run and the long run?
The government in the cross model Net taxes NT(Y) depends positively on real GDP in the cross model In this model when national income increase
Q. Explain about Household savings? Remember that consumption may refer to observed consumption as well as to demand for consumption. The same is true for 'household savings',
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