Multiplier Effect

1. What is the formula for the simple multiplier?

• 1 / MPS
• 1 / MPC
• MPC / MPS
• MPS / MPC

2. What does MPC stand for?

• Marginal Purchase Cost
• Maximum Price Cap
• Marginal Propensity to Consume
• Market Price Coefficient

3. If MPC is 0.75, what is the multiplier?

• 4
• 1.33
• 0.25
• 3

4. What happens to the multiplier if MPC increases?

• It stays the same
• It decreases
• It increases
• It becomes negative

5. What does MPS stand for?

• Market Price Support
• Marginal Price Spend
• Marginal Propensity to Spend
• Marginal Propensity to Save

6. If MPS is 0.2, what is the multiplier?

• 2
• 5
• 10
• 0.2

7. What is the effect of a higher MPS on the multiplier?

• Multiplier increases
• Multiplier decreases
• No effect
• Government spending rises

8. Which of the following is a withdrawal from the circular flow?

• Government spending
• Exports
• Investment
• Savings

9. Which of these is an injection into the circular flow?

• Imports
• Taxes
• Savings
• Government spending

10. If the multiplier is 2, how much will GDP rise if the government increases spending by £10 billion?

• £5 billion
• £10 billion
• £15 billion
• £20 billion