8) When investment increases, the multiplier points out that
A) consumption decreases by a greater amount.
B) real GDP increases by a greater amount.
C) consumption increases by the same amount.
D) real GDP decreases by a greater amount.
E) ultimately investment increases by more than the initial increase.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
9) If investment increases ,which of the following happens?
i. Aggregate expenditure increases.
ii. Real GDP increases.
iii. Consumption expenditure decreases.
A) i and ii
B) i only
C) ii only
D) ii and iii
E) i, ii, and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
10) The multiplier means that an increase in investment results in ________ aggregate
expenditure that is ________ the increase in investment.
A) increased; larger than
B) increased; the same size as
C) increased; smaller than
D) decreased; larger than
E) decreased; smaller than
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
61
11) Increases in autonomous expenditure induce ________ in aggregate expenditure thereby
making the multiplier ________.
A) further increases; greater than one
B) further increases; less than one
C) a decrease; greater than one
D) a decrease; less than one
E) further increases; unnecessary
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
12) If investment increases by $100, then the aggregate expenditure model concludes that
equilibrium expenditure
A) increases by $100.
B) increases by less than $100.
C) increases by more than $100.
D) remains unchanged.
E) decreases by $100.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
13) If autonomous spending decreases, then
A) equilibrium expenditure decreases by the same amount.
B) the expenditure multiplier means that equilibrium expenditure decreases by a larger
amount.
C) equilibrium expenditure does not change.
D) the expenditure multiplier means that equilibrium expenditure increases by a larger
amount.
E) the expenditure multiplier means that equilibrium expenditure increases by a smaller
amount.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
62
14) In an economy with no income taxes or imports, the expenditure multiplier is
A) less than 1 only if the MPC is less than 1.
B) greater than 1 only if the MPC is greater than 1.
C) equal to 1 if the MPC is greater than 1.
D) greater than 1 if the MPC is less than 1.
E) always less than 1 no matter what the size of the MPC.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
15) If an increase of $10 billion of investment results in an increase in equilibrium
expenditure of $40 billion, the multiplier equals
A) $10 billion × $40 billion = $400 billion.
B) $40 billion – $10 billion = $30 billion.
C) $40 billion ÷ $10 billion = 4.
D) $10 billion ÷ $40 billion = 0.25.
E) $10 billion – $40 billion = –$30 billion.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
16) The multiplier is 5 and, as a result of a change in expenditure, equilibrium expenditure
and real GDP change by $200 billion. What was the initial change in autonomous
expenditure?
A) $50 billion
B) $40 billion
C) $20 billion
D) $200 billion
E) $1,000 billion
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
63
17) When the multiplier is ________, an autonomous decrease in investment of $200 billion
decreases equilibrium real GDP by $400 billion. When the multiplier is ________, an
autonomous decrease in investment of $200 billion decreases equilibrium real GDP by $800
billion.
A) 2.0; 4.0
B) 0.2; 0.4
C) 0.4; 0.2
D) $400 billion; $800 billion
E) 4.0; 8.0
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
18) If a $2 billion increase in investment brings about a $5 billion increase in equilibrium
expenditure, we know that the multiplier equals
A) 3.
B) 10.
C) 2.5.
D) 4.
E) 5.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
19) If the MPC is 0.6 and there are no imports or income taxes, the multiplier is
A) 0.4.
B) 0.6.
C) 2.5.
D) 6.
E) 1.7.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
64
20) An economy has no imports or income taxes. The MPC is 0.75 and real GDP is $120
billion. Businesses increase investment by $4 billion. The multiplier is ________ and the
change in real GDP from the increase in investment is ________ billion.
A) 5; $25
B) 4; $16
C) 5; $16
D) 4; $25
E) 0.75; $3
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
21) If autonomous spending increases by $500 billion and, as a result, equilibrium real GDP
increases by $2 trillion, then we know that the
A) MPC is greater than 1.
B) expenditure multiplier is 0.25.
C) expenditure multiplier is 4.0.
D) MPC equals 1.
E) expenditure multiplier is 2.0.
Skill: Level 4: Applying models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
22) A $1.5 trillion increase in investment leads equilibrium expenditure to increase from
$7.0 trillion to $10.5 trillion. In this case, the expenditure multiplier is
A) 1.50.
B) 2.33.
C) 4.67.
D) 7.00.
E) 10.5.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
65
23) An economy has no imports or income taxes. An increase in autonomous expenditure of
$40 billion increases equilibrium expenditure by $160 billion. The expenditure multiplier
equals
A) 2.
B) 4.
C) 6.
D) 8.
E) 16.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
24) As a result of an initial increase in investment of $200 billion, real GDP increased by
$800 billion. Given this information, the expenditure multiplier equals
A) 6.
B) 2.
C) 4.
D) 1/4.
E) $800 billion.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
25) The MPC is 0.90 and there are no income taxes or imports. If government expenditures
on goods and services increases by $2.0 billion, after the multiplier efect works out,
aggregate expenditure increases by
A) $1.8 billion.
B) $2.22 billion.
C) $10 billion.
D) $20 billion.
E) $2.0 billion.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
66
26) An economy has no imports or income taxes. The MPC is 0.75 and real GDP is $120
billion. Businesses increase investment by $4 billion. The new level of real GDP is
A) $124 billion.
B) $128 billion.
C) $132 billion.
D) $136 billion.
E) $140 billion.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
27) In an economy with no income taxes or imports, if the MPC is .75, the multiplier is
A) 0.25.
B) 0.33.
C) 0.50.
D) 4.00.
E) 3.00.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
28) In an economy with no income taxes or imports, if the multiplier is 5, what does the
MPC equal?
A) 0.5
B) 0.4
C) 0.8
D) 0.2
E) 0.9
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
67
29) If the marginal propensity to consume is very close to zero, then the multiplier
A) is very close to zero.
B) is very close to one.
C) is very large.
D) cannot be calculated.
E) might be negative if the marginal tax rate is large enough.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
30) The above table contains information about the nation of Syldavia. There are no income
taxes or imports in this nation. The marginal propensity to consume in Syldavia is equal to
A) 0.80.
B) 0.20.
C) 5.00.
D) 0.75.
E) 0.40.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
68
31) The above table contains information about the nation of Syldavia. There are no income
taxes or imports in this nation. When real GDP is $15 billion, irms’ inventories experience
an unplanned
A) decrease of $10 billion.
B) increase of $4 billion.
C) increase of $10 billion.
D) decrease of $1 billion.
E) increase of $5 billion.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
32) The above table contains information about the nation of Syldavia. There are no income
taxes or imports in this nation. The equilibrium expenditure is
A) $15 billion.
B) $25 billion.
C) $10 billion.
D) $20 billion.
E) $30 billion.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
33) The above table contains information about the nation of Syldavia. There are no income
taxes or imports in this nation. The expenditure multiplier is equal to
A) 0.8.
B) 5.
C) 2.
D) 1.25.
E) 10.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
69
34) Which of the following afects the magnitude of the multiplier?
i. marginal propensity to consume
ii. marginal propensity to invest
iii. marginal tax rate
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
35) The value of the multiplier changes if the ________ changes.
i. marginal tax rate
ii. marginal propensity to import
iii. marginal propensity to consume
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
36) The size of the expenditure multiplier is inluenced by
i. the marginal propensity to consume.
ii. autonomous spending.
iii. the marginal tax rate.
A) i only
B) ii only
C) iii only
D) ii and iii
E) i and iii
Skill: Level 1: Deinition
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
37) If the marginal propensity to consume is 0.85 and there are no imports or income taxes,
the expenditure multiplier is equal to
A) 1 – 0.85 = 0.15.
B) 0.85 × the change in autonomous expenditure.
C) 1 ÷ 0.85 = 1.176.
D) 1 ÷ (1 – 0.85) = 1 ÷ 0.15 = 1.45.
E) 0.85 ÷ 1 = 0.85.