1. The multiplier effect means that:
A.consumption is typically several times as large as saving.
B.a small change in consumption can cause a much larger increase in investment.
C.a small increase in investment can cause GDP to change by a larger amount.
D.a small decline in the MPC can cause equilibrium GDP to rise by several times that amount.


2. The multiplier is:
A.1/MPC.
B.1/(1 + MPC).
C.1/MPS.
D.1/(1 - MPS).


3. The multiplier is useful in determining the:
A.full-employment unemployment rate.
B.level of business inventories.
C.rate of inflation.
D.change in equilibrium GDP resulting from a change in spending.


4. If 100 percent of any change in income is spent, the multiplier will be:
A.equal to the MPC.
B.1.
C.zero.
D.infinitely large.


5. The multiplier can be calculated as:
A.1/(MPS + MPC)
B.MPC/MPS
C.1/(1 - MPC)
D.1 - MPC = MPS


6. The practical significance of the multiplier is that it:
A.brings about an equality of planned investment and saving.
B.magnifies relatively small initial changes in spending into larger changes in GDP.
C.keeps inflation within tolerable limits.
D.helps to stabilize the economy.


7. The increase in income that results from an increase in investment spending would be greater the:
A.smaller the MPS.
B.smaller the APC.
C.larger the MPS.
D.smaller the MPC.


8. If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is:
A.4.
B.5.
C.3.33.
D.2.5.


9. Other things equal, if $100 billion of government purchases (G) is added to private spending (C + Ig + Xn), GDP will:
A.increase by $100 billion.
B.increase by less than $100 billion.
C.increase by more than $100 billion.
D.fall by $100 billion


10. A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because:
A.government spending is more employment-intensive than is either consumption or investment spending.
B.government spending increases the money supply and a tax reduction does not.
C.a portion of a tax cut will be saved.
D.taxes vary directly with income.


11. Which of the following would reduce GDP by the greatest amount?
A.a $20 billion increase in taxes
B.$20 billion increases in both government spending and taxes
C.$20 billion decreases in both government spending and taxes
D.a $20 billion decrease in government spending



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