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Questions and Answers

  1. What is the multiplier effect in economics?

  • a. A decrease in overall economic activity
  • b. An increase in overall economic activity (correct)
  • c. The stabilization of prices
  • d. The reduction of government spending

  1. The multiplier effect is based on the idea that:

  • a. Consumer spending is constant (correct)
  • b. Government spending has no impact on the economy
  • c. Changes in spending have a magnified impact on overall economic activity
  • d. Investment spending is always negative

  1. The formula for the simple multiplier is

  • a. Multiplier = 1 / (1 - MPC) (correct)
  • b. Multiplier = 1 + MPC
  • c. Multiplier = 1 / MPC
  • d. Multiplier = MPC / 1

  1. If the marginal propensity to consume (MPC) is 0.8, what is the value of the multiplier?

<p>a. 5 (A)</p> Signup and view all the answers

  1. The multiplier effect leads to a larger change in

<p>c. Both aggregate demand and income equally (C)</p> Signup and view all the answers

  1. If the initial increase in spending is $1,000 and the multiplier is 4, what will be the total increase in income?

<p>d. $4,000 (D)</p> Signup and view all the answers

  1. The multiplier effect is more significant when

<p>c. Marginal propensity to consume is high (C)</p> Signup and view all the answers

  1. Which of the following is not a factor that influences the size of the multiplier?

<p>d. Inflation rate (D)</p> Signup and view all the answers

  1. If the marginal propensity to consume (MPC) is 0.9, what is the value of the multiplier?

<p>c. 10 (C)</p> Signup and view all the answers

  1. The multiplier effect can amplify the impact of a change in

<p>c. Government spending (C)</p> Signup and view all the answers

  1. If the marginal propensity to consume (MPC) is 0.75, what is the value of the multiplier?

<p>d. 4 (D)</p> Signup and view all the answers

  1. The multiplier effect is a concept closely related to

<p>a. Fiscal policy (A)</p> Signup and view all the answers

  1. If the initial increase in investment is $500 and the multiplier is 2, what will be the total increase in income?

<p>c. $1,000 (C)</p> Signup and view all the answers

  1. The multiplier effect tends to stabilize the economy by

<p>c. Dampening fluctuations in economic activity (C)</p> Signup and view all the answers

  1. If the marginal propensity to consume (MPC) is 0.6, what is the value of the tax multiplier?

<p>b. 1.5 (B)</p> Signup and view all the answers

  1. If the initial increase in taxes is $800 and the tax multiplier is 5, what will be the total change in income?

<p>b. $ -4,000 (B)</p> Signup and view all the answers

  1. If the marginal propensity to consume (MPC) is 0.5 and government spending decreased by $100. what is the total change in income?

<p>c. -200 (C)</p> Signup and view all the answers

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