Spending Multiplier

If the value of the multiplier is 5, an increase in

• consumer spending of $10 will result in investment increasing by $50.

• investment of $10 will result in income increasing by $60.

• investment of $10 will result in consumption increasing by $40.

• consumption of $10 will result in investment increasing by $40.

The value of the multiplier will increase if

• autonomous investment increases.
• induced investment increases.
• the MPC decreases.
• the MPS decreases.

West Babylonia is an economy with a multiplier of 2.5. The current level of GDP is $250 million below the full employment level of GDP. For the government to close this gap, it needs to increase its spending by

• $250 million.

• $100 million.

• $10 million.

• $625 million.

In the the Nation of Eagleton, a increase in government spending of $20 billion results in an increase in gross domestic product (GDP) of $80 billion. Thus, in Eagleton the MPC is _____ and the value of the multiplier is _______.

• 0.80; 5

• 0.75; 4

• 0.80; 4

• 0.9; 10

The multiplier effect means that

• consumption is usually several times as large as savings

• a change in consumption can cause a larger change in investment

• an increase in investment can change GDP by a larger amount

• a decline in MPC can cause GDP to rise by a larger amount

The multiplier is:

• 1/MPC
• 1/1+MPC
• 1/MPS
• 1/1-MPS

The multiplier is useful in determining:

• the full employment rate
• level of business inventories
• rate of inflation
• change in GDP resulting from a change in spending

If there is an increase in export spending by people in foreign nations buying US manufactured goods and this change in spending leads to a larger than expected increase in GDP, this is reflective of....

• economic growth

• the multiplier

• keynesian economic policy

• accelerator

The equation for the multiplier is:

• 1/MPC
• 1/1+MPC
• 1/MPS
• 1/1-MPS

The marginal propensity to consume refers to the 

• proportion of any change in income that is spent on consumption
• levels of consumption as a proportion of total income
• changes in consumption as a result of higher interest rates
• additional consumption spending on imported goods