Question 1

In an economy with no income taxes or imports,the expenditure multiplier is
A)greater than 1 if the MPC is less than 1.
B)equal to 1 if the MPC is greater than 1.
C)greater than 1 only if the MPC is greater than 1.
D)always less than 1 no matter what the size of the MPC.
E)less than 1 only if the MPC is less than 1.

Accepted Answer

The expenditure multiplier is calculated as 1/MPS, where MPS is the marginal propensity to save. In an economy with no income taxes or imports, the MPC (marginal propensity to consume) is equal to 1 - MPS. Therefore, if the MPC is less than 1, then the MPS is greater than 0, and the expenditure multiplier is greater than 1. If the MPC is equal to 1, then the MPS is equal to 0, and the expenditure multiplier is undefined. If the MPC is greater than 1, then the MPS is negative, and the expenditure multiplier is less than 1, which is not a possible scenario. Therefore, the best choice is A.

Question 2

The expenditure multipliers occur because
A)a change in autonomous expenditure causes real GDP to change in the opposite direction.
B)government expenditure on goods and services change by an amount proportional to government taxes.
C)a change in households' incomes changes autonomous expenditure.
D)any change in real GDP must also change the price level.
E)a change in autonomous expenditures changes households' incomes.

Accepted Answer

The expenditure multipliers occur because a change in autonomous expenditures causes a change in households' incomes, which in turn induces further changes in consumption expenditures, resulting in a multiplied total change in real GDP. The expenditure multiplier is the ratio of the total change in real GDP to the initial change in autonomous expenditure.

Question 3

If the MPC is 0.6 and there are no imports or income taxes,the multiplier is
A)1.7.
B)6.
C)0.4.
D)0.6.
E)2.5.

Accepted Answer

The answer of If the MPC is 0.6 and there...

Question 4

Increases in autonomous expenditure induce ________ in aggregate expenditure thereby making the multiplier ________.
A)a decrease;less than one
B)further increases;less than one
C)further increases;greater than one
D)further increases;unnecessary
E)a decrease;greater than one

Accepted Answer

Increases in autonomous expenditure will increase aggregate expenditure, and since the multiplier effect amplifies the initial change in autonomous expenditure, the multiplier will be greater than one. Therefore, further increases in autonomous expenditure will result in even larger increases in aggregate expenditure.

Question 5

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)$20 billion
B)$40 billion
C)$200 billion
D)$1,000 billion
E)$50 billion

Accepted Answer

According to the formula for the multiplier, the change in equilibrium expenditure is equal to the initial change in autonomous expenditure multiplied by the multiplier. Therefore, we can use the following equation to solve for the initial change in autonomous expenditure: 
ΔY = multiplier × ΔAutonomous expenditure 
ΔY = $200 billion 
Multiplier = 5 
$200 billion = 5 × ΔAutonomous expenditure 
ΔAutonomous expenditure = $40 billion 
Therefore, the initial change in autonomous expenditure was $40 billion. 
Thus, the correct answer is B.

Question 6

The expenditure multiplier measures the change in
A)autonomous spending that results from a change in equilibrium expenditure.
B)equilibrium expenditure that results from a change in autonomous expenditure.
C)the price level that results from a change in real GDP.
D)consumption expenditure for a given change in disposable income.
E)equilibrium expenditure from a change in induced consumption.

Accepted Answer

The expenditure multiplier measures the change in equilibrium expenditure that results from a change in autonomous expenditure. This means that for example, if there is a change in government spending or investment, the expenditure multiplier would measure the resulting change in equilibrium expenditure. The formula for the expenditure multiplier is 1/(1-MPC), where MPC is the marginal propensity to consume.

Question 7

In an economy in with no income taxes or imports, the multiplier equals
A) 
B) 
C) 
D) 
E)

Accepted Answer

The answer of In an economy in with no income...

Question 8

The multiplier means that an increase in investment results in ________ aggregate expenditure that is ________ the increase in investment.
A)decreased;larger than
B)increased;smaller than
C)decreased;smaller than
D)increased;larger than
E)increased;the same size as

Accepted Answer

The multiplier effect is based on the idea that an increase in investment leads to a multiplication of the effect on aggregate expenditure. This means that the increase in aggregate expenditure resulting from the increase in investment will be greater than the initial increase in investment itself. Therefore, the correct choice is (D) increased; larger than.

Question 9

According to John Maynard Keynes,
A)a free market economy automatically finds equilibrium at full employment.
B)Say's Law is always correct.
C)effective demand determines real GDP.
D)prices and wages move up and down freely.
E)supply creates its own demand.

Accepted Answer

According to Keynes, effective demand (the total amount of goods and services that consumers and businesses are willing and able to purchase) determines the level of real GDP in an economy. This means that the level of economic output is not determined solely by the supply of goods and services, as suggested by Say's Law, but also by the level of demand for those goods and services.

Question 10

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)4;$16
B)5;$16
C)4;$25
D)5;$25
E)0.75;$3

Accepted Answer

The multiplier is 1/(1-MPC) = 1/(1-0.75) = 4. The change in real GDP is the multiplier times the change in investment, which is 4 * $4 billion = $16 billion.

Question 11

The idea of the multiplier is that a change in ________ expenditure changes real GDP,which then changes ________ expenditure.The change in total expenditure will be larger than the initial change in ________ expenditure.
A)autonomous;induced;autonomous
B)induced;induced;autonomous
C)induced;autonomous;autonomous
D)induced;autonomous;induced
E)autonomous;induced;induced

Accepted Answer

The multiplier effect describes how an initial change in autonomous expenditure (such as investment or government spending) leads to a larger overall change in real GDP, which then induces further changes in consumption or other expenditures.

Question 12

If investment increases by $100,then the aggregate expenditure model concludes that equilibrium expenditure
A)decreases by $100.
B)increases by $100.
C)increases by more than $100.
D)remains unchanged.
E)increases by less than $100.

Accepted Answer

In the aggregate expenditure model, an increase in investment leads to a multiplied increase in equilibrium expenditure due to the multiplier effect, resulting in an increase greater than the initial investment.

Question 13

If autonomous spending decreases,then
A)the expenditure multiplier means that equilibrium expenditure decreases by a larger amount.
B)equilibrium expenditure does not change.
C)equilibrium expenditure decreases by the same amount.
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.

Accepted Answer

The expenditure multiplier amplifies the effect of a change in autonomous spending on the overall equilibrium expenditure. Therefore, if autonomous spending decreases, the expenditure multiplier ensures that the equilibrium expenditure decreases by a larger amount than the initial decrease in autonomous spending.

Question 14

The expenditure multiplier explains how a change in
A)real GDP leads to a change in induced expenditure.
B)induced expenditure leads to a change in real GDP.
C)induced expenditure leads to a change in autonomous expenditure.
D)autonomous expenditure leads to a change in real GDP.
E)real GDP leads to a change in autonomous expenditure.

Accepted Answer

The expenditure multiplier shows how a change in autonomous expenditure (such as investment, government spending, or exports) leads to a multiplied change in real GDP due to the induced changes in consumption and other components of aggregate demand.

Question 15

-In the figure above,if real GDP is $10 trillion,aggregate planned expenditure is
A)equal to $10 trillion and there are no unplanned inventory changes.
B)less than $10 trillion and unplanned inventory changes are positive.
C)more than $10 trillion and unplanned inventory changes are negative.
D)equal to $10 trillion and unplanned inventory changes are negative.
E)equal to $10 trillion and unplanned inventory changes are positive.

Accepted Answer

The answer of 
-In the figure above,if real GDP is...

Question 16

The expenditure multiplier is typically
A)negative.
B)greater than 1.
C)equal to 1.
D)less than 1 but greater than 0.
E)greater than 10.

Accepted Answer

The expenditure multiplier measures the change in equilibrium output resulting from a change in autonomous expenditure. The value of the multiplier is determined by the marginal propensity to consume (MPC), which represents the fraction of an additional dollar of income that is spent on consumption. The formula for the expenditure multiplier is 1/MPS, where MPS is the marginal propensity to save. Since MPC + MPS = 1, the expenditure multiplier is always greater than 1.

Question 17

If an increase of $10 billion in investment results in an increase in equilibrium expenditure of $40 billion,the multiplier equals
A)$10 billion × $40 billion = $400 billion.
B)$10 billion - $40 billion = -$30 billion.
C)$10 billion ÷ $40 billion = 0.25.
D)$40 billion ÷ $10 billion = 4.
E)$40 billion - $10 billion = $30 billion.

Accepted Answer

The multiplier is calculated by dividing the change in equilibrium expenditure by the initial change in investment. In this case, the change in equilibrium expenditure is $40 billion, and the initial change in investment is $10 billion. So, the multiplier equals 4, as $40 billion ÷ $10 billion = 4.

Question 18

-In the above figure,equilibrium expenditure is equal to
A)$5 trillion.
B)$15 trillion.
C)$20 trillion.
D)$10 trillion.
E)None of the above answers is correct

Accepted Answer

The answer of 
-In the above figure,equilibrium expenditure is equal...

Question 19

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)0.4;0.2
C)$400 billion;$800 billion
D)4.0;8.0
E)0.2;0.4

Accepted Answer

This question is testing understanding of the spending multiplier formula, which is 1/MPS or 1/(1-MPC). If we assume a marginal propensity to consume (MPC) of 0.5, which is common in introductory macroeconomics, then the multiplier would be 2.0 (1/0.5) in the first scenario and 4.0 (1/0.25) in the second scenario. Using the formula for the spending multiplier, an autonomous decrease in investment of $200 billion (which is assumed to be the same in both scenarios) would lead to a decrease in equilibrium real GDP of $400 billion in the first scenario (2.0 x $200 billion) and $800 billion in the second scenario (4.0 x $200 billion). Therefore, the correct answer is A.

Question 20

If a $2 billion increase in investment brings about a $5 billion increase in equilibrium expenditure,we know that the multiplier equals
A)10.
B)2.5.
C)4.
D)5.
E)3.

Accepted Answer

The multiplier is calculated as the change in equilibrium expenditure divided by the change in investment. In this case, the change in equilibrium expenditure is $5 billion and the change in investment is $2 billion, so the multiplier is $5 billion / $2 billion = 2.5.

Quiz 12: Aggregate Expenditure Multiplier

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

The expenditure multipliers occur because

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

Increases in autonomous expenditure induce in aggregate expenditure thereby making the multiplier .

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?

The expenditure multiplier measures the change in

In an economy in with no income taxes or imports, the multiplier equals

The multiplier means that an increase in investment results in aggregate expenditure that is the increase in investment.

According to John Maynard Keynes,

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.

The idea of the multiplier is that a change in expenditure changes real GDP,which then changes expenditure.The change in total expenditure will be larger than the initial change in expenditure.

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

If autonomous spending decreases,then

The expenditure multiplier explains how a change in

-In the figure above,if real GDP is $10 trillion,aggregate planned expenditure is

The expenditure multiplier is typically

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

-In the above figure,equilibrium expenditure is equal to

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.

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