Question : 16.5   The Size of the Multiplier 1) Firms report that their : 1381240

16.5   The Size of the Multiplier

1) Firms report that their workers are working six hours of overtime per week. The government reports that the unemployment rate is 3.5%. In this situation, the multiplier is likely to be

A) negative.

B) large.

C) small.

D) infinitely large.

2) As the economy approaches full employment, the size of the multiplier will

A) remain unchanged.

B) become negative.

C) become larger.

D) become smaller.

3) The government spending multiplier is likely to be smaller during periods of

A) high output and high unemployment.

B) high output and low unemployment.

C) low output and low unemployment.

D) low output and high unemployment.

4) The government spending multiplier is likely to be larger during periods of

A) high output and low unemployment.

B) low output and low unemployment.

C) low output and high unemployment.

D) high output and high unemployment.

5) If the economy has automatic stabilizers built in, the multiplier will

A) be smaller than it would have been in the absence of automatic stabilizers.

B) be larger than it would have been in the absence of automatic stabilizers.

C) be zero.

D) be infinitely larger than it would have been in the absence of automatic stabilizers.

6) Which of the following statements is TRUE?

A) Increases in the interest rate crowd out both consumption and investment spending, and this reduces the size of the multiplier.

B) Increases in the interest rate crowd out both consumption and investment spending, and this increases the size of the multiplier.

C) Increases in the interest rate have no effect on the size of the multiplier because higher interest rates cause consumption to increase, which offsets the crowding out of investment.

D) Increases in the interest rate cause the size of the multiplier to be smaller if the economy is on the flat portion of the AS curve and to be larger if the economy is on the steep portion of the AS curve.

7) Which of the following statements is TRUE?

A) The multiplier effects for policy changes that are perceived to be temporary are smaller than those for policy changes that are perceived to be permanent.

B) The multiplier effects for policy changes that are perceived to be temporary are larger than those for policy changes that are perceived to be permanent.

C) The multiplier effects for policy changes that are perceived to be temporary are the same as those for policy changes that are perceived to be permanent.

D) There is no relationship between the size of the multiplier effect and whether policy changes are perceived to be temporary or permanent.

8) Suppose that the value of the multiplier has increased in recent years. Which of the following could have caused this?

A) Consumption has become more sensitive to changes in the interest rate.

B) The costs of inventory storage have fallen.

C) Changes in the way the unemployment compensation fund is financed have made it more expensive for firms to lay off workers.

D) “Buy America” campaigns launched by many unions have succeeded in reducing the demand for imported goods.

9) If it becomes more expensive for firms to hold excess capital and labor, the multiplier will

A) decrease.

B) remain unchanged.

C) increase.

D) either increase or decrease depending on the value of the MPC.

10) Firms have inventories that they can draw down to meet an increase in demand. This will

A) have no effect on the multiplier, because the MPC remains unchanged.

B) increase the size of the multiplier, because firms will be able to respond more quickly to a change in demand.

C) decrease the size of the multiplier, because output will not immediately respond to changes in demand.

D) either increase or decrease the multiplier, depending on the size of the MPC.