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Stagflation, Volatile Component, and Multiplier Effect

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I need a explanation for these questions:

1) Is it true the USA may be moving into a period of stagflation?

2) Is it false in the equation C + I + G + NX = GDP that the most volatile component is C?

3) The larger the MPC, the smaller the multiplier effect? (True, False?)

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Solution Summary

This solution explains if the following statements are true or false. Detailed explanations as to why the statements are true or false are also provided.

1) Is it true the USA may be moving into a period of stagflation?

2) Is it false in the equation C + I + G + NX = GDP that the most volatile component is C?

3) The larger the MPC, the smaller the multiplier effect? (True, False?)

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Let's look at your questions:

1) Is it true the USA may be moving into a period of stagflation?

Yes, there is always a chance when certain conditions remain persistent, that we're headed into stagflation. When we deal with stagflation, we're dealing with high unemployment, high inflation, and demand that doesn't increase. We have had high levels of unemployment which is partially causing the high levels of inflation. We then have a situation where high unemployment also decreases aggregate demand, which also causes high inflation. Demand won't likely improve until unemployment ...

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