CHAPTER 44
The Multiplier
MULTIPLE CHOICE
486. The multiplier effect
a. measures how much a price increase for one good will affect the exchange rate.
b. measures how much a price increase for one good will affect the overall rate of inflation.
c. measures how much a new injection of spending will affect overall GDP.
d. measures how much a new injection of spending will affect the overall rate of inflation.
487. What is the government multiplier?
a. It measures how much total national income is increased by an increase in government
spending.
b. It measures how much government spending is increased each year.
c. It measures how much government collects in tax revenues each year.
d. It measures how much government budgets are affected by the rate of inflation.
488. Assume that government spending increases by $1 billion and national income increases by
$10 billion. What is the government multiplier?
a. 0.10
b. 1.0
c. 10
d. 100
489.
consumption increase this year when he receives his raise of $1000?
a. $90
b. $900
c. $1000
d. $100
490. Assume that the marginal propensity to consume in the US is currently 95%. If the
government increases spending by $1 billion, how much will national income increase?
a. $95 million.
b. $95 billion.
c. $5 billion.
d. $20 billion
491. Assume that the marginal propensity to consume in the US is currently 99%. What is the
marginal propensity to save?
a. 10%
b. 1%
c. 9%
d. .01%
492. If the objective of government policy during a recession is to increase aggregate demand,
then it should
a. raise income taxes.
b. increase government spending.
c. decrease government transfers.
Appendix 44.1
The Accelerator
MULTIPLE CHOICE
493. The effect of changes in national income on investment is measured by
a. the multiplier
b. the accelerator
c. the marginal propensity to invest
d. the interest rate
494. Assume that business analysts predict that it will take $60,000 of new equipment to
increase output of hats by $20,000 each year. What is the accelerator for the hat industry?
a. 0.33
b. 3
c. 33
d. 30%
495. The accelerator model suggests that the most important determinant of investment is
a. the interest rate
b. the level of consumer demand.
c. changes in consumer demand.
d. the level of current GDP