Question 1

If the slope of the AE curve increases,the multiplier

Accepted Answer

The multiplier is equal to 1/(1-MPC), where MPC is the marginal propensity to consume. As the slope of the AE curve (which represents the relationship between consumption and income) increases, the MPC also increases. Therefore, the multiplier increases because the denominator (1-MPC) decreases.

Question 2

In general,the flatter the aggregate expenditure curve,the

Accepted Answer

The flatter the aggregate expenditure curve, the smaller the multiplier. This is because a flatter curve means that a given change in autonomous expenditure will result in a smaller overall change in aggregate expenditure. The multiplier is the ratio of the change in aggregate expenditure to the initial change in autonomous expenditure, so a smaller overall change in aggregate expenditure will result in a smaller multiplier.

Question 3

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

Accepted Answer

The answer of If there are no taxes or imports...

Question 4

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 (MPI).

MPC measures the fraction of additional income that households choose to spend on consumption, while MPI measures the fraction of additional income that is spent on imports.

If MPC increases, then a larger proportion of income is spent on consumption, leading to a steeper slope of the aggregate expenditure curve.

On the other hand, if MPI decreases, then a smaller proportion of income is spent on imports, which also leads to a steeper slope of the aggregate expenditure curve.

Therefore, option A is correct, as both increasing MPC and decreasing MPI lead to a steeper slope of the aggregate expenditure curve.

Question 5

The larger the slope of the AE curve,the

Accepted Answer

The slope of the AE curve determines the size of the multiplier effect. A steeper slope indicates that a change in autonomous expenditure will have a larger impact on aggregate expenditure, resulting in a larger multiplier. Hence, the larger the slope of the AE curve, the larger the value of the multiplier.

Question 6

In an economy with no income taxes or imports,the multiplier equals

Accepted Answer

The answer of In an economy with no income taxes...

Question 7

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 the AE curve). Given the slope is 0.60, the multiplier is 1/(1 - 0.60) = 1/(0.40) = 2.5.

Question 8

The expenditure multiplier equals

Accepted Answer

The expenditure multiplier is correctly defined as 1/(1 - slope of AE curve), where AE stands for aggregate expenditure. This formula captures the multiplier effect of an initial change in spending leading to a larger overall impact on the economy.

Question 9

Assume there are no taxes or imports.The government estimates that between 2008 and 2009 disposable income decreased by $300 billion and consumption expenditure decreased by $180 billion.Based on these data,the multiplier equals

Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC (marginal propensity to consume) is the change in consumption divided by the change in disposable income. Here, MPC = -180/-300 = 0.6. Thus, the multiplier is 1/(1-0.6) = 2.5.

Question 10

If there are no income taxes or imports,the multiplier equals

Accepted Answer

The multiplier in a closed economy without taxes is defined as 1/(1 - marginal propensity to consume), because the marginal propensity to consume determines how much of additional income will be spent, thus influencing the size of the multiplier effect.

Question 11

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

Accepted Answer

The multiplier is given as 3.33, which is the reciprocal of the MPS. So, MPS = 1/3.33 = 0.3. And since MPC + MPS = 1, we can find MPC as 1 - MPS = 1 - 0.3 = 0.7. Therefore, both choices A and B are correct.

Question 12

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

Accepted Answer

The multiplier formula is: 1/(1-MPC)
Given the multiplier is 4, we can calculate the MPC as:
4= 1/(1-MPC)
Multiplying both sides with (1-MPC), we get:
4-4MPC=1
4MPC=3
MPC=3/4=0.75
Thus, the marginal propensity to consume is 0.75.

Question 13

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 answer of Suppose that last year the slope of...

Question 14

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

Accepted Answer

The formula for calculating the multiplier is 1/(1-MPC). 
Since MPC is given as 0.67, the multiplier would be 1/(1-0.67) which equals 3. Therefore, if there are no taxes or imports, a change in spending of $1 would result in a total change in income of $3. Choice B is the correct answer.

Question 15

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 answer of If the marginal propensity to consume is...

Question 16

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 will cause a larger change in total expenditure due to the larger multiplier effect.

Question 17

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 multiplier is calculated as 1/(1-MPC), so if the multiplier is 10, then 10 = 1/(1-MPC). Solving for MPC gives MPC = 0.9.

Question 18

The smaller the slope of the AE curve,________.

Accepted Answer

The slope of the AE curve is directly related to the value of the multiplier, which is calculated as 1/(1-MPC), where MPC is the slope of the consumption function. A smaller slope of the AE curve implies a smaller value of the multiplier, which means that a given change in autonomous expenditures (such as investment or government spending) will have a smaller overall impact on aggregate demand.

Question 19

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

Accepted Answer

The multiplier is calculated as 1/(1-MPC), so with an MPC of 0.75, the multiplier equals 1/(1-0.75) = 4.0.

Question 20

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 simple spending multiplier is 1/(1-MPC). Therefore, with an MPC of 0.9, the multiplier would be 1/(1-0.9) = 1/(0.1) = 10.0. Therefore, a change in autonomous expenditure would produce a 10-fold increase in overall spending.

Quiz 11: Expenditure Multipliers