Question 1

If the marginal propensity to consume is 4/5,the value of the simple multiplier is
A)4
B)1/5
C)4/5
D)5/4
E)5

Accepted Answer

The simple multiplier is calculated as 1/(1-MPC). If MPC is 4/5, the multiplier is 1/(1-4/5) = 1/(1/5) = 5.

Question 2

Which is true regarding the marginal propensity to consume and the multiplier?
A)The lower the MPC,the higher the multiplier.
B)The higher the MPC,the lower the multiplier.
C)The MPC equals the multiplier.
D)The sum of the MPC and the multiplier equals 1.
E)The lower the MPC,the lower the multiplier.

Accepted Answer

The multiplier is inversely related to the marginal propensity to save (MPS), which is 1 - MPC. Therefore, a lower MPC means a higher MPS, leading to a lower multiplier.

Question 3

If the multiplier is 4,a $10 billion increase in autonomous investment will cause a
A)$10 billion increase in equilibrium investment
B)$40 billion increase in equilibrium investment
C)$40 billion increase in equilibrium real GDP demanded
D)$400 billion increase in equilibrium real GDP demanded
E)$40 billion increase in consumption spending

Accepted Answer

The multiplier effect means that a $10 billion increase in autonomous investment will lead to a $40 billion increase in equilibrium real GDP demanded, as the multiplier is 4.

Question 4

Exhibit 9-9 
-The simple multiplier equals
A)the marginal propensity to consume
B)the marginal propensity to save
C)the reciprocal of the marginal propensity to save
D)the reciprocal of the marginal propensity to consume
E)one minus the marginal propensity to consume

Accepted Answer

The simple multiplier equals the reciprocal of the marginal propensity to save. This is because the multiplier is the amount by which an initial change in spending or investment is multiplied to determine the total impact on the economy. When individuals save a portion of their income, this reduces the initial change in spending and therefore reduces the multiplier effect. The reciprocal of the marginal propensity to save accounts for this reduction and gives us the multiplier.

Question 5

If the marginal propensity to save is 1/8,the value of the simple multiplier is
A)8
B)1/8
C)2
D)1/2
E)4

Accepted Answer

The simple multiplier is 1/(1-MPS), so if MPS is 1/8, the multiplier is 1/(1-1/8) = 8.

Question 6

Which of the following would result from a decrease in autonomous saving?
A)an upward shift of the aggregate expenditure line
B)an upward shift of the 45-degree line
C)a decrease in the equilibrium level of real GDP demanded
D)an increase in the level of autonomous consumption
E)an increase in the level of autonomous investment

Accepted Answer

Autonomous saving is a component of the aggregate saving function, which determines the level of saving at each level of real GDP, holding other factors constant. A decrease in autonomous saving implies that at each level of real GDP, households and businesses are saving less than before. This reduces the level of aggregate expenditure at each level of real GDP, leading to a downward shift of the aggregate expenditure line. Therefore, the correct answer is A, an upward shift of the aggregate expenditure line, as it is the opposite of what would happen.

Question 7

If autonomous consumption rises by $0.8 trillion and the marginal propensity to consume (MPC)equals 3/4,the equilibrium level of output demanded will rise by
A)$0.2 trillion
B)$0.6 trillion
C)$1.07 trillion
D)$2.4 trillion
E)$3.2 trillion

Accepted Answer

The answer of If autonomous consumption rises by $0.8 trillion...

Question 8

If the simple multiplier is 8,the marginal propensity to consume is
A)1/8
B)1/4
C)4/5
D)7/8
E)8

Accepted Answer

The simple multiplier is calculated as 1/(1-MPC). If the multiplier is 8, then 1/(1-MPC) = 8. Solving for MPC gives MPC = 7/8.

Question 9

If the simple multiplier is 10,the marginal propensity to save is
A)1/10
B)9/10
C)1/9
D)10/9
E)9

Accepted Answer

The simple multiplier is given by the equation: 1 / (1 - MPC), where MPC is the marginal propensity to consume. Since the simple multiplier is 10, we can set up the equation as 1 / (1 - MPC) = 10 and solve for MPC.

1 / (1 - MPC) = 10

Multiplying both sides by (1 - MPC):

1 = 10(1 - MPC)

1 = 10 - 10MPC

Simplifying:

10MPC = 9

MPC = 9/10

But the question asks for the marginal propensity to save, which is 1 - MPC. Therefore:

MPS = 1 - MPC = 1 - 9/10 = 1/10

So, the answer is A) 1/10.

Question 10

If the multiplier is 3,a $20 billion increase in autonomous consumption will cause a
A)$20 billion increase in equilibrium consumption
B)$60 billion increase in equilibrium consumption
C)$20 billion increase in equilibrium real GDP demanded
D)$60 billion increase in equilibrium real GDP demanded
E)$60 billion decrease in autonomous saving

Accepted Answer

The multiplier effect amplifies the initial change in spending. With a multiplier of 3, a $20 billion increase in autonomous consumption leads to a $60 billion increase in equilibrium real GDP demanded.

Question 11

If the marginal propensity to consume is 4/5,the simple multiplier is
A)1/6
B)6
C)5/6
D)6/5
E)5

Accepted Answer

The simple multiplier is calculated as 1/(1-MPC). If MPC is 4/5, then the multiplier is 1/(1-4/5) = 1/(1/5) = 5.

Question 12

If an increase in planned investment of $70 billion causes equilibrium output demanded to rise by $280 billion,the value of the marginal propensity to consume is
A)4
B)4/3
C)1/3
D)1/4
E)3/4

Accepted Answer

The multiplier effect is calculated as the change in output divided by the change in investment, which is $280 billion / $70 billion = 4. The formula for the multiplier is 1/(1-MPC), so 4 = 1/(1-MPC). Solving for MPC gives MPC = 3/4.

Question 13

If autonomous investment increases by $100 billion,equilibrium real GDP demanded will
A)increase by $100 billion
B)not change
C)increase by ($100 billion)/MPC
D)increase by $100 billion $\times$ MPC
E)increase by $100 billion/MPS

Accepted Answer

The change in equilibrium real GDP demanded due to a change in autonomous investment is determined by the spending multiplier, which is 1/MPS (Marginal Propensity to Save). Therefore, an increase in autonomous investment by $100 billion will increase equilibrium real GDP by $100 billion/MPS.

Question 14

Exhibit 9-9 
-The larger the marginal propensity to save,other things constant,
A)the larger the marginal propensity to consume
B)the larger the multiplier
C)the steeper the consumption function
D)the flatter the consumption function
E)the flatter the saving function

Accepted Answer

The marginal propensity to save (MPS) and the marginal propensity to consume (MPC) are complementary; as MPS increases, MPC decreases, leading to a flatter consumption function.

Question 15

If autonomous investment decreases by $60 billion,equilibrium real GDP demanded will
A)increase by $60 billion
B)decrease by $60 billion
C)decrease by ($60 billion)$\times$ MPC
D)decrease by $60 billion $\times$ (1 - MPC)
E)decrease by $60 billion/MPS

Accepted Answer

The multiplier effect shows that a change in autonomous investment will lead to a larger change in equilibrium GDP. The multiplier is 1/MPS (Marginal Propensity to Save), so the decrease in GDP will be $60 billion divided by MPS.

Question 16

Suppose that planned investment increases by $200 billion and that the marginal propensity to consume equals 0.80.The aggregate expenditure line will shift upward by __________ at every level of real GDP.
A)$40 billion
B)$160 billion
C)$200 billion
D)$250 billion
E)$1,000 billion

Accepted Answer

Planned investment is an injection into the economy, which will increase the aggregate expenditure by the same amount of $200 billion. The marginal propensity to consume of 0.80 means that for every additional dollar of income, people will spend $0.80, leading to a multiplier effect on the aggregate expenditure of 1/(1-MPC) = 1/(1-0.80) = 5. Therefore, the aggregate expenditure line will shift upward by 5 times the increase in planned investment, which is $200 billion multiplied by 5 = $1,000 billion. However, the question asks for the shift in aggregate expenditure per level of real GDP, so we need to divide $1,000 billion by the total output, which is unknown. Alternatively, we can calculate the shift in aggregate expenditure per unit of real GDP by using the multiplier times the increase in planned investment per unit of real GDP, which is 5 times $200 billion = $1,000 billion. Dividing $1,000 billion by the total output gives the fraction of the output that will be affected by the shift in aggregate expenditure, which is the slope of the aggregate expenditure line. Therefore, the answer is $200 billion, which represents the increase in expenditure per unit of real GDP at all levels of output.

Question 17

Increases in the marginal propensity to consume,other things constant,
A)increase the value of the multiplier
B)decrease the value of the multiplier
C)never change the value of the multiplier
D)shift the aggregate expenditure curve downward
E)cause a downward movement along an aggregate expenditure curve

Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. As the MPC increases, the denominator in this equation decreases, resulting in an increase in the overall value of the multiplier.

Question 18

Suppose that planned autonomous investment increases by $200 billion and that the marginal propensity to consume equals 0.80.The equilibrium level of real GDP will increase by
A)$40 billion
B)$160 billion
C)$200 billion
D)$250 billion
E)$1,000 billion

Accepted Answer

The multiplier effect is calculated as 1/(1-MPC), which in this case is 1/(1-0.80) = 5. The increase in investment is $200 billion, so the increase in GDP is 5 * $200 billion = $1,000 billion.

Question 19

If the marginal propensity to consume is 3/4,the simple multiplier is
A)3
B)7
C)4
D)25
E)3/10

Accepted Answer

The simple multiplier is calculated using the formula 1/ (1 - marginal propensity to consume).
Here, marginal propensity to consume is 3/4.
Therefore, the simple multiplier is 1/ (1-3/4) = 1 / (1/4) = 4.
Hence, the correct answer is (C) 4.

Question 20

Other things being equal,a decrease in an economy's exports will
A)increase domestic aggregate expenditures and the equilibrium level of output
B)decrease domestic aggregate expenditures and the equilibrium level of output
C)have no impact on domestic aggregate expenditures or output
D)decrease the marginal propensity to import
E)change autonomous consumption

Accepted Answer

A decrease in exports means that there is a decrease in foreign demand for domestic goods. This will lead to a decrease in domestic aggregate expenditures and in turn, a decrease in the equilibrium level of output.

Quiz 10: Baggregate Expenditure and Aggregate Demand

If the marginal propensity to consume is 4/5,the value of the simple multiplier is

Which is true regarding the marginal propensity to consume and the multiplier?

If the multiplier is 4,a $10 billion increase in autonomous investment will cause a

Exhibit 9-9 -The simple multiplier equals

If the marginal propensity to save is 1/8,the value of the simple multiplier is

Which of the following would result from a decrease in autonomous saving?

If autonomous consumption rises by $0.8 trillion and the marginal propensity to consume (MPC) equals 3/4,the equilibrium level of output demanded will rise by

If the simple multiplier is 8,the marginal propensity to consume is

If the simple multiplier is 10,the marginal propensity to save is

If the multiplier is 3,a $20 billion increase in autonomous consumption will cause a

If the marginal propensity to consume is 4/5,the simple multiplier is

If an increase in planned investment of $70 billion causes equilibrium output demanded to rise by $280 billion,the value of the marginal propensity to consume is

If autonomous investment increases by $100 billion,equilibrium real GDP demanded will

Exhibit 9-9 -The larger the marginal propensity to save,other things constant,

If autonomous investment decreases by $60 billion,equilibrium real GDP demanded will

Suppose that planned investment increases by $200 billion and that the marginal propensity to consume equals 0.80.The aggregate expenditure line will shift upward by __________ at every level of real GDP.

Increases in the marginal propensity to consume,other things constant,

Suppose that planned autonomous investment increases by $200 billion and that the marginal propensity to consume equals 0.80.The equilibrium level of real GDP will increase by

If the marginal propensity to consume is 3/4,the simple multiplier is

Other things being equal,a decrease in an economy's exports will