Question 1

The slope of the AE curve is 0.9. Investment decreases by $100 million and the price level is constant. Real GDP

Accepted Answer

The AE curve's slope of 0.9 indicates the marginal propensity to consume. A $100 million decrease in investment leads to a multiplied effect on GDP. The multiplier is 1/(1-0.9) = 10, so GDP decreases by 10 * $100 million = $1 billion.

Question 2

If the MPC is .9 and there are no income taxes or imports, the multiplier for a change in autonomous expenditure equals

Accepted Answer

The formula for the multiplier is 1/(1-MPC), so in this case, the multiplier would be 1/(1-.9) = 1/.1 = 10.

Question 3

The smaller the slope of the AE curve, .

Accepted Answer

The slope of the AE curve represents the marginal propensity to consume (MPC), which is a key determinant of the multiplier. Specifically, the multiplier equals 1/MPC. Therefore, the smaller the slope of the AE curve (i.e. the smaller the MPC), the larger the value of the multiplier. Therefore, choice D is the correct answer. Choices A, B, and C are incorrect.

Question 4

If the price level is constant and the slope of the AE curve is 0.75, a decrease in investment of $100 leads to a decrease in real GDP of

Accepted Answer

The multiplier effect is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Here, the slope of the AE curve is 0.75, which is the MPC. The multiplier is 1/(1-0.75) = 4. Therefore, a decrease in investment of $100 leads to a decrease in real GDP of $100 * 4 = $400.

Question 5

A change in which of the following changes the slope of the aggregate expenditure curve?

Accepted Answer

The slope of the aggregate expenditure curve is determined by the marginal propensity to consume (MPC). An increase in the MPC will increase the slope, while changes in autonomous consumption or government expenditures affect the level, not the slope.

Question 6

If there are no taxes or imports and MPC = 0.5, the multiplier equals

Accepted Answer

The multiplier equals 1/(1-MPC), where MPC is the marginal propensity to consume. If MPC = 0.5, the multiplier equals 1/(1-0.5) = 2.0. Thus, the best choice is B.

Question 7

The slope of the aggregate expenditure curve increases when the marginal propensity to consume___________ or the marginal propensity to import ___________ .

Accepted Answer

The slope of the aggregate expenditure curve is determined by the marginal propensity to consume (MPC) and the marginal propensity to import (MPM). An increase in MPC increases the slope, while a decrease in MPM also increases the slope, as less is spent on imports.

Question 8

In a simple economy in which prices are constant and with no income taxes or imports, the marginal propensity to save is 0.2. If exports increase $50, what impact will that have on aggregate expenditure?

Accepted Answer

The marginal propensity to consume (MPC) is 0.8 (since MPS is 0.2). The multiplier is 1/(1-MPC) = 1/0.2 = 5. Therefore, an increase in exports by $50 will increase aggregate expenditure by 5 * $50 = $250.

Question 9

If the multiplier is 3.33 and there are no imports or income taxes, then the

Accepted Answer

The multiplier is calculated as 1/MPS, where MPS is the marginal propensity to save. If the multiplier is 3.33, then the MPS is 0.3 (1/3.33). Therefore, the MPC (marginal propensity to consume) is 0.7 (1 - 0.3). Both options A and B are correct, so the answer is C.

Question 10

In general, the steeper the aggregate expenditure curve, the

Accepted Answer

The steeper the aggregate expenditure curve, the larger the multiplier. This is because a small change in autonomous expenditure leads to a large change in equilibrium output.

Question 11

Suppose that the slope of the AE curve is 0.80. Then an increase of investment of $10 billion leads to an increase in equilibrium real GDP equal to

Accepted Answer

The multiplier effect is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. With a slope of 0.80, the MPC is 0.80. The multiplier is 1/(1-0.80) = 5. Therefore, an increase in investment of $10 billion leads to an increase in equilibrium real GDP of $10 billion * 5 = $50 billion.

Question 12

If there are no taxes or imports and MPC = 0.67, the multiplier is

Accepted Answer

In the absence of taxes and imports, the multiplier is calculated as follows:

Multiplier = 1/MPS

where MPS is the marginal propensity to save, which is equal to (1 - MPC).

So in this case, MPS = (1 - 0.67) = 0.33

Therefore, the multiplier = 1/0.33 = 3.03 (rounded to 2 decimal places).

The closest option is B, which is 3.

Question 13

If the slope of the AE curve is 0.60, the value of the multiplier is

Accepted Answer

The multiplier is calculated as 1/(1-slope of AE curve). Therefore, the multiplier in this case is 1/(1-0.60) = 2.5. The correct answer is B.

Question 14

Suppose that last year the slope of the AE curve is 0.67 and this year the slope of the AE curve changes to 0.8. Which of the following best describes what happens to the multiplier?

Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the slope of the AE curve. An increase in the slope from 0.67 to 0.8 increases the multiplier from 3 (1/(1-0.67)) to 5 (1/(1-0.8)).

Question 15

If the multiplier for a change in autonomous expenditure is 10 and there are no income taxes or imports, then the MPC is

Accepted Answer

The answer of If the multiplier for a change in...

Question 16

In general, the flatter the aggregate expenditure curve, the

Accepted Answer

A flatter aggregate expenditure curve indicates a smaller marginal propensity to consume, which results in a smaller multiplier.

Question 17

Given an MPC of 0.80, if there are no income taxes or imports and prices are constant, then when investment increases by $50 million, when prices are fixed equilibrium GDP would

Accepted Answer

The multiplier is 1/(1-MPC) = 1/(1-0.8) = 5. So, a $50 million increase in investment will lead to a $50 million * 5 = $250 million increase in equilibrium GDP.

Question 18

If the multiplier is 4 and there are no imports or income taxes, the marginal propensity to consume is

Accepted Answer

The multiplier is 1/(1-MPC), so if the multiplier is 4, then 1-MPC = 1/4, or MPC = 3/4 = 0.75.

Question 19

If the marginal propensity to consume is 0.8 and there no income taxes or imports, the multiplier for a change in autonomous expenditure equals

Accepted Answer

The multiplier is calculated as 1/(1-MPC). With an MPC of 0.8, the multiplier is 1/(1-0.8) = 1/0.2 = 5.0.

Question 20

If there are no taxes or imports and MPC = 0.75, the multiplier equals

Accepted Answer

The formula for the multiplier is 1/MPC.
Given that MPC = 0.75, the multiplier would be 1/0.75 = 4.0.

Quiz 11: Expenditure Multipliers: the Keynesian Model