\ 11.

Lr-

Ifthe 1v1PSis only half as large as the 1v1PC,the multiplier: a) is 2. b) is 3. c) is 4. d) cannot be deterrnmed from the information given. Answer:

12. The complex multiplier is: a) larger than the simple multiplier because the latter embodies fewer leakages. b) larger than the simple multiplier because the latter embodies more leakages. c) smaller than the simple multiplier because the latter embodies fewer leakages. d) smaller than the simple multiplier bec~use the latter embodies more leakages. Answer:

~.

Ifthe 1v1PCis.70 and gross inv~stmentincreases by $3 billion, the equilibrium GDP will: a) increase by $10 billion. b) increase by $2.10 billion. c) decreaseby $4.29 billion. d) increase by $4.29 billion. Answer:

e.

The value ofpropensityto the multipliercons'urne. will be smaller the: a) numerical larger the average b) larger the slope of the saving schedule. Answer:

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l

c) larger the slope of the consumption schedule. d) smaller the slope of the saving schedule.

15. The practical significance of the multiplier is that it: a) brings about an equality ofplanned investment and saving. b) magnifies relatively small initial changes in spending into larger changes in GDP. c) keeps inf1ation within tolerable limits. d) helps to stabilize the economy. Answer:

J'

4.

.

The multiplier is defmed as: a) 1 - :MPS.

c) chaB:gein GDP/initial change in spending. d) changein GDP - initial change in spending.

b) change in GDP x initial change in spending.

Use the followíng to answer questions 5-6: S1

01 s:::

>(ti U)

$4

O

GDP

-

,

.

5. The above figure shows the saving schedules for economies 1,2,3, and 4. Which economy has the highest margina! propensity to consume? a) I b) 2 c) 3 d) 4 Answer:

6. The above figure shows the saving schedules for economies 1,2,3, and 4. Which economy has the largest multiplier? a) I b) 2 c) 3 d) 4 Answer:

.

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Type: C Topic: 3 E: 208.;209 MA: 208-209 Status: New 99. Supposethe economy's multiplier is 2. Other things equal, a $25 billion decrease in govemment expenditures on I1atlona]defeI1:ié wilI cause equilibrium GDP to: a) decrease by $50 billion. b) decrease by $150 billion. c) remain unchanged since spending onmilitary goods is unprodu~tive and usually wasteful. d) decrease by $25 billion. Answer:

L

I

100.

L-

Assume the 1'vfPCis .8. li government were to impose $50 billion ofnew taxes on household income, consumption spending

woulddecreaseby: a) $100 billion. Answer:

b) $90 billion.

c) $40 billion

d) $50 billion.

l22.. In a private closed economy (a) the marginal propensity to save is 0.25, (b) consumption equals income at $120 bilhon. and (c) the level of investment is $40 billion. What is the equilibrium level of income? a) $280 billion b) $320 billion c) $262 billion d) $198 billion Answer:

38. Ifthe marginal propensity to consume is 0.9 in a private c10sed economy, a $20 billion decline in investment spending wij] decrease: a) GDP by $20 billion. Answer:

I

39.

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b) GDP by $100 billion. c) saving by $20.

d) consumption by $200 billion.

Suppose that the 1eve1of GDP increased by $100 billion in an econ~my where the marginal propensity to consume IS 0.5 Aggregate expenditures must have increased by: a) $100 billion. b) $50 billion. c) $500 billion. d) $5 billion. .A.I1swer:

",

J se the foUowing tOanswer questíons 101-103: Ca+/g+Xn+G

Ca+Ig+Xn+G

C+/g+Xn C 90 60 40

o

l2,:l,

~2.

~,

$100 $150 $225

GDP

Refer to the above'diagram. The level of governmentspending: c) varies inversely with the level of GDP. a) is equal to tax collections at each level ofGDP. b) is the same at alllevels of GDP. d) varies directly with the level of GDP. Answer:

Refer to the above diagram. The sizes ofthe multipliers associated with changes in investment and government spending in this economy: a) are 2.5 and 1.5 respectively. b) are 3 and 2 respectively. c) are both 2.5. d) are 2 and 3 respectively. Answer:

Referto the above diagram. The impact ofthe public sector on the equilibrium GDP: a) is expansionary. b) is contractionary. c) is neutra1. d) cannot be detennined from the informationgiven. Answer: