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Questions and Answers

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

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

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

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

a. 5 Signup and view all the answers

The multiplier effect leads to a larger change in

c. Both aggregate demand and income equally Signup and view all the answers

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

d. $4,000 Signup and view all the answers

The multiplier effect is more significant when

c. Marginal propensity to consume is high Signup and view all the answers

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

d. Inflation rate Signup and view all the answers

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

c. 10 Signup and view all the answers

The multiplier effect can amplify the impact of a change in

c. Government spending Signup and view all the answers

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

d. 4 Signup and view all the answers

The multiplier effect is a concept closely related to

a. Fiscal policy Signup and view all the answers

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

c. $1,000 Signup and view all the answers

The multiplier effect tends to stabilize the economy by

c. Dampening fluctuations in economic activity Signup and view all the answers

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

b. 1.5 Signup and view all the answers

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

b. $ -4,000 Signup and view all the answers

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

c. -200 Signup and view all the answers