11) Increases in autonomous expenditure induce ________ in aggregate expenditure thereby making the multiplier ________.

A) further increases; greater than one

B) further increases; less than one

C) a decrease; greater than one

D) a decrease; less than one

E) further increases; unnecessary

12) If investment increases by $100, then the aggregate expenditure model concludes that equilibrium expenditure

A) increases by $100.

B) increases by less than $100.

C) increases by more than $100.

D) remains unchanged.

E) decreases by $100.

13) If autonomous spending decreases, then

A) equilibrium expenditure decreases by the same amount.

B) the expenditure multiplier means that equilibrium expenditure decreases by a larger amount.

C) equilibrium expenditure does not change.

D) the expenditure multiplier means that equilibrium expenditure increases by a larger amount.

E) the expenditure multiplier means that equilibrium expenditure increases by a smaller amount.

14) In an economy with no income taxes or imports, the expenditure multiplier is

A) less than 1 only if the MPC is less than 1.

B) greater than 1 only if the MPC is greater than 1.

C) equal to 1 if the MPC is greater than 1.

D) greater than 1 if the MPC is less than 1.

E) always less than 1 no matter what the size of the MPC.

15) If an increase of $10 billion of investment results in an increase in equilibrium expenditure of $40 billion, the multiplier equals

A) $10 billion × $40 billion = $400 billion.

B) $40 billion - $10 billion = $30 billion.

C) $40 billion ÷ $10 billion = 4.

D) $10 billion ÷ $40 billion = 0.25.

E) $10 billion - $40 billion = -$30 billion.

16) The multiplier is 5 and, as a result of a change in expenditure, equilibrium expenditure and real GDP change by $200 billion. What was the initial change in autonomous expenditure?

A) $50 billion

B) $40 billion

C) $20 billion

D) $200 billion

E) $1,000 billion

17) When the multiplier is ________, an autonomous decrease in investment of $200 billion decreases equilibrium real GDP by $400 billion. When the multiplier is ________, an autonomous decrease in investment of $200 billion decreases equilibrium real GDP by $800 billion.

A) 2.0; 4.0

B) 0.2; 0.4

C) 0.4; 0.2

D) $400 billion; $800 billion

E) 4.0; 8.0

18) If a $2 billion increase in investment brings about a $5 billion increase in equilibrium expenditure, we know that the multiplier equals

A) 3.

B) 10.

C) 2.5.

D) 4.

E) 5.

19) If the MPC is 0.6 and there are no imports or income taxes, the multiplier is

A) 0.4.

B) 0.6.

C) 2.5.

D) 6.

E) 1.7.

20) An economy has no imports or income taxes. The MPC is 0.75 and real GDP is $120 billion. Businesses increase investment by $4 billion. The multiplier is ________ and the change in real GDP from the increase in investment is ________ billion.

A) 5; $25

B) 4; $16

C) 5; $16

D) 4; $25

E) 0.75; $3

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