QUESTION 3

a. What is the "spending multiplier effect" and how does it operate in the economy?(2 marks)

b. How do the marginal propensity to consume (MPC) and marginal propensity to save (MPS), have an effect on the "spending multiplier"?

C. Explain using examples (calculations) where appropriate, which "multiplier policy choice" would have

the most significant impact for the economy; using an injection of $5 bil and an MPC 0.75 - for the

three (3) different types of choices the Government commonly uses to stimulate the economy with

Fiscal policy.As per Fiscal chapter of your text.

Multiple choice

5. Table 3 lists the price elasticity coefficients of demand for 3 grocery items at the local general store. The financial officer responsible for overseeing the pricing of items in the general store has interpreted 4 statements from the information presented in Table 3. Which of the following 4 statements is the most correct?