11) Assume there is no government or foreign sector. If the MPS is 0.05, the multiplier is
A) 0.95.
B) 10.
C) 20.
D) 50.
12) Assume there is no government or foreign sector. If the multiplier is 10, a $10 billion increase in planned investment will cause aggregate output to increase by
A) $1 billion.
B) $5 billion.
C) $10 billion.
D) $100 billion.
13) Assume there is no government or foreign sector. If the MPS is 0.2, a $40 billion decrease in planned investment will cause aggregate output to decrease by
A) $20 billion.
B) $50 billion.
C) $80 billion.
D) $200 billion.
14) Assume there is no government or foreign sector. If the multiplier is 4, a $20 billion increase in investment will cause aggregate output to increase by
A) $5 billion.
B) $20 billion.
C) $40 billion.
D) $80 billion.
Refer to the information provided in Figure 8.12 below to answer the questions that follow.
Figure 8.12
15) Refer to Figure 8.12. What is the equation for aggregate expenditure AE1?
A) AE1 = 1,000 + 0.5Y.
B) AE1 = 600 + 0.4Y.
C) AE1 = 1,000 + 0.6Y.
D) AE1 = 400 + 0.4Y.
16) Refer to Figure 8.12. Suppose AE1, AE2 and AE3 are parallel. What is the value of Point B?
A) $750 million
B) $800 million
C) $900 million
D) cannot be determined from the given information
17) Refer to Figure 8.12. Suppose AE1, AE2 and AE3 are parallel. What is the value of Point A?
A) $450 million
B) $510 million
C) $540 million
D) cannot be determined from the given information
18) Refer to Figure 8.12. Suppose the economy’s aggregate expenditure line is AE1. A $10 million increase in planned investment causes aggregate equilibrium output to increase to
A) $1,010.0 million.
B) $1,016.7 million.
C) $1,125.5 million.
D) $1,215.6 million.
19) As the MPS decreases, the multiplier will
A) increase.
B) decrease.
C) remain constant.
D) either increase or decrease depending on the size of the change in investment.
20) Midwest State University in Nebraska is trying to convince Nebraska taxpayers that the tax dollars spent at Midwest State University are well spent. One of the university’s arguments is that for every $1 spent by Midwest State University an additional $5 of expenditures are generated within Nebraska. Midwest State University is arguing that the multiplier for their expenditures is
A) 0.2.
B) 1.
C) 4.
D) 5.
21) If autonomous consumption increases, the size of the multiplier would
A) increase.
B) decrease.
C) remain constant.
D) either increase or decrease depending on the size of the change in autonomous consumption.
22) In practice, the actual size of the multiplier is about
A) 1.
B) 1.4.
C) 2.
D) 4.
23) Related to the Economics in Practice on p. 472: According to the “paradox of thrift,” as individuals increase their saving,
A) income in the economy increases because there is more money available for firms to invest.
B) income in the economy increases because interest rates will fall and the economy will expand.
C) income in the economy will remain constant because the change in consumption equals the change in saving.
D) income in the economy will fall because the decreased consumption that results from increased saving causes the economy to contract.
24) Related to the Economics in Practice on p. 472: According to the “paradox of thrift,” increased efforts to save will cause a(n)
A) increase in income and an increase in overall saving.
B) increase in income but no overall change in saving.
C) decrease in income and an overall decrease in saving.
D) decrease in income but an increase in saving.
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