Aggregate Demand and Multiplier

If the marginal propensity to consume (MPC) decreases from 0.8 to 0.6, how will the marginal propensity to save (MPS) and the spending multiplier change?

• The MPS increases; spending multiplier decreases

• The MPS decreases; spending multiplier decreases

• The MPS increases; no change in the spending multiplier

• The MPS increases; the spending multiplier increases

• No change to the MPS, the spending multiplier increases

The marginal propensity to consume (MPC) in Hamsterville is 0.75

What will be the size of the change in aggregate demand that will occur as a result of a $1 million dollar increase in the government spending component of AD?

• $0.75 million

• $4 million

• $0.25 million

• $3 million

• $1.75 million

Assume Gerbilia's marginal propensity to save (MPS) is 0.3

By how much will household consumption increase as a result of an increase in disposable incomes of $2000?

• $600

• 70%

• $2000

• $1400

• $700

Gerbilia decreased lump-sum taxes by $6

What measure can be used to determine the final impact on aggregate demand that occurs as a result of the change in lump-sum taxes?

• The money multiplier

• The tax multiplier

• The expenditure multiplier

• No calculation is needed because AD will decrease by $6 billion

• The balanced budget multiplier

What will happen to the size of the expenditure multiplier and the size of the tax multiplier when the marginal propensity to save (MPS) increases?

• Both decrease

• Both increase

• The size of the tax multiplier increases, the size of the spending multiplier decreases

• The size of the tax multiplier doesn't change, the size of the spending multiplier increases

• The size of the tax multiplier increases, the size of the spending multiplier doesn't change

What measure can be used to determine the final impact of the change in investment spending on aggregate demand (AD)?

• The tax multiplier

• The balanced budget multiplier

• The expenditure multiplier

• The money multiplier

• No calculation is needed because AD will decrease by $6 billion

The nation of Johnsrudia has a marginal propensity to consume (MPC) of 0.9

If there is an autonomous increase in new home construction of $10 billion, what will happen to real gross domestic product (GDP)?

• Real GDP will increase by exactly $9 billion

• Real GDP will increase by exactly $10 billion

• Real GDP will increase by less that $9 billion

• Real GDP will not change

• Real GDP will increase by more than $10 billion

Hamsterville, where the marginal propensity to save is equal to 0.25, is currently experiencing a negative output gap of $60 million.

How much would Hamsterville's government have to change taxes to restore the full employment level of aggregate output?

• Taxes should be increased by $60 million

• Taxes should be reduced by $10 million

• Taxes should be reduced by $20 million

• Taxes should be increased by $15 million

• Taxes should be reduced by $5 million

Fred got a year-end bonus in two different years. The table describes how much of that bonus he spent in each year.

If Fred's habits represent the typical household in this country, what is the marginal propensity to save (MPS) in this country?

• 3

• 0.75

• 250

• 0.25

• 1.33

Households in Iron Island save %10 of every additional dollar in income that they receive.

What will happen to aggregate demand Iron Island if there is a $4 billion increase in lump-sum taxes?

• Real GDP will increase by $4 billion

• Real GDP will decrease by $18 billion

• Real GDP will decrease by $40 billion

• Real GDP will decrease by $36 billion

• Real GDP will increase by $36 billion