Topic: Multiplier
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
38) Which of the following reduces the magnitude of the expenditure multiplier?
A) higher marginal tax rates
B) decrease in imports
C) decrease in saving
D) decrease in government purchases of goods and services
E) decrease in the marginal propensity to consume
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
39) The ________ the marginal tax rate, the ________ the expenditure multiplier.
A) smaller; smaller
B) smaller; larger
C) larger; larger
D) larger; more negative
E) None of the above is correct, because the expenditure multiplier is not related to the
marginal tax rate.
Skill: Level 1: Deinition
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
71
40) The ________ the marginal tax rate, the ________ the efect on aggregate expenditure
from a change in investment.
A) larger; smaller
B) larger; larger
C) smaller; smaller
D) smaller; larger
E) More information about the efect on GDP is needed to answer the question.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
41) The President proposes a reduction of personal income marginal tax rates in the United
States. When marginal tax rates are reduced, there is
A) an increase in the marginal propensity to consume.
B) an increase in the magnitude of the expenditure multiplier.
C) a decrease in the marginal propensity to consume.
D) a decrease in the magnitude of the expenditure multiplier.
E) no change in the slope of the AE line.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
42) The ________ the marginal propensity to import, the ________ the multiplier.
A) smaller; smaller
B) larger; larger
C) larger; smaller
D) larger; more negative
E) None of the above is correct, because the expenditure multiplier is not related to the
marginal propensity to import.
Skill: Level 1: Deinition
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
72
43) The marginal propensity to import is larger in Mexico than in the United States. As a
result,
A) the expenditure multiplier is larger in the United States.
B) the expenditure multiplier is larger in Mexico.
C) there is less autonomous investment in Mexico.
D) there is more autonomous expenditure in Mexico.
E) induced expenditure is larger in Mexico.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
44) Compared to the magnitude of the multiplier in an economy without imports, the
multiplier in an identical economy with imports is
A) always smaller.
B) always larger.
C) smaller only if imports exceed exports.
D) larger only if exports exceed imports.
E) exactly the same.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
45) The smaller the slope of the aggregate planned expenditure (AE) curve, the
A) larger the multiplier.
B) smaller the multiplier.
C) larger is the marginal tax rate.
D) larger are imports.
E) larger are exports.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
73
46) The formula, , is equal to the
A) marginal propensity to consume.
B) marginal propensity to export.
C) expenditure multiplier.
D) marginal tax rate.
E) total amount of autonomous expenditure.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
47) If the slope of the aggregate expenditure curve is 0.75, the expenditure multiplier is
equal to
A) 0.25.
B) 0.75.
C) 1.33.
D) 4.00.
E) 5.00.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
48) If the expenditure multiplier is 5, the slope of the aggregate expenditure (AE) curve is
A) 0.5.
B) 0.6.
C) 0.7.
D) 0.8.
E) 0.2.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
74
49) If a country has an expenditure multiplier of 10, the slope of its aggregate planned
expenditure (AE) curve is
A) .10.
B) .50.
C) .90.
D) 10.00.
E) .80.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
50) During 2013, exports increase from $1.0 trillion to $1.5 trillion. If the slope of the
aggregate planned expenditure (AE) curve is 0.75, real GDP increases by
A) $1.0 trillion.
B) $2.0 trillion.
C) $4.0 trillion.
D) $6.0 trillion.
E) $8.0 trillion.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
51) During 2013, a country reported that its real GDP increased by $3.0 billion. If the slope
of its aggregate planned expenditure curve is 0.9, then which of the following might have
led to the increase in real GDP?
A) Exports decreased by $0.3 billion.
B) Exports increased by $0.3 billion.
C) Imports increased by $0.3 billion.
D) Government expenditure on goods and services increased by $3 billion.
E) Investment decreased by $0.3 billion.
Skill: Level 4: Applying models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
75
52) As the economy turns the corner into a recession, the level of unplanned inventories
________ and irms ________ production.
A) increases; begin to decrease
B) increases; begin to increase
C) decreases; begin to decrease
D) decreases; begin to increase
E) increases; do not change
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
53) During the start of an expansion, aggregate planned expenditure
A) increases the magnitude of the expenditure multiplier.
B) decreases the magnitude of the expenditure multiplier.
C) exceeds real GDP.
D) is less than real GDP.
E) is slowly decreasing.
Skill: Level 4: Applying models
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
54) ________ can trigger a recession.
A) An increase in autonomous expenditure
B) A decrease in autonomous expenditure
C) Equality between aggregate expenditure and real GDP
D) An increase in the expenditure multiplier
E) An increase in induced expenditure
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
76
55) ________ can trigger an expansion.
A) An increase in autonomous expenditure
B) A decrease in autonomous expenditure
C) Equality between aggregate expenditure and real GDP
D) A decrease in induced expenditure
E) A downward shift of the AE line
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
56) The multiplier efect
A) explains what causes a recession.
B) explains what causes an expansion.
C) explains how the economy recovers from a recession.
D) reinforces the negative efects of any reduction in spending.
E) has no impact on equilibrium expenditure.
Skill: Level 1: Deinition
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
57) If the economy is in the expansion phase of a business cycle and investment increases,
when the multiplier efect kicks in, the expansion
A) picks up speed.
B) slows down.
C) peaks.
D) is not efected.
E) reverses.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
77
58) An insight into business cycles is gained by the fact that
A) at a peak, autonomous expenditure increases, thereby leading to a recession.
B) at a trough, induced expenditure decreases, thereby leading to an expansion.
C) at a peak, a decrease in autonomous expenditure leads to a decrease in induced
expenditure.
D) changes in real GDP result in changes in autonomous expenditures.
E) autonomous expenditure does not change at either a peak or a trough.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
59) The expenditure multiplier is equal to the change in ________ divided by the change in
________.
A) autonomous expenditure; equilibrium expenditure
B) dependent expenditure; autonomous expenditure
C) real GDP; equilibrium expenditure
D) equilibrium expenditure; autonomous expenditure
E) the price level; real GDP
Skill: Level 1: Deinition
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
60) The expenditure multiplier is larger than one because
A) an increase in autonomous expenditure induces further increases in aggregate
expenditure.
B) additional expenditure induces lower incomes.
C) an increase in autonomous expenditure brings about a reduction in the real interest
rate.
D) an increase in autonomous expenditure induces further decreases in aggregate
expenditure.
E) the price level rises, thereby reinforcing the initial efect.
Skill: Level 1: Deinition
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
78
61) The expenditure multiplier equals 5 and there is a $3 million increase in investment.
Equilibrium expenditure
A) decreases by $15 million.
B) increases by $3 million.
C) increases by $5 million.
D) increases by $15 million.
E) increases by $0.60 million.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
62) In an economy with no income taxes or imports, the marginal propensity to consume is
0.80. The expenditure multiplier is
A) 0.20.
B) 0.80.
C) 1.25.
D) 5.00.
E) 10.0.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
63) An increase in the marginal tax rate
A) increases the expenditure multiplier.
B) decreases the expenditure multiplier but cannot make it negative.
C) has no efect on the expenditure multiplier.
D) can either increase or decrease the expenditure multiplier.
E) decreases the expenditure multiplier and can make it negative.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
79
64) Which of the following increases the size of the expenditure multiplier?
A) a decrease in the marginal propensity to consume
B) an increase in autonomous spending
C) an increase in the marginal income tax rate
D) a decrease in the marginal propensity to import
E) an increase in investment
Skill: Level 1: Deinition
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
65) If the slope of the aggregate expenditure curve is 0.5, then the expenditure multiplier
equals
A) 5.
B) 4.
C) 3.
D) 2.
E) 0.5.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
66) At the beginning of a recession, the expenditure multiplier
A) ofsets the initial cut in autonomous expenditure and slows the recession.
B) reinforces the initial cut in autonomous expenditure and adds force to the recession.
C) ofsets the initial cut in autonomous expenditure and reverses the recession.
D) reinforces the initial cut in autonomous expenditure and reverses the recession.
E) has no efect on the recession.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
80