Question 1

-In the above figure,the multiplier is equal to

Accepted Answer

A)  zero. 
B)  one. 
C)  two. 
D)  three.

Question 2

What is the mathematical formula for the multiplier?
Why is there a multiplier?

Accepted Answer

The answer of What is the mathematical formula for the...

Question 3

In the Keynesian model of aggregate expenditure,we assume that firms will

Accepted Answer

A)  not change prices. 
B)  change prices only when inventory levels rise. 
C)  raise prices when inventory levels fall. 
D)  lower prices when inventory levels rise.

Question 4

The slope of the aggregate expenditure curve increases when the marginal propensity to consume ________ or the marginal propensity to import ________.

Accepted Answer

A)  increases; decreases 
B)  decreases; increases 
C)  decreases; decreases 
D)  increases; increases

Question 5

An increase in the value of the multiplier can be caused by

Accepted Answer

A)  a decrease in the marginal propensity to consume. 
B)  an increase in the marginal propensity to import. 
C)  an increase in autonomous consumption expenditure. 
D)  an increase in the marginal propensity to consume.

Question 6

If the multiplier is 3.33 and there are no imports or income taxes,then the

Accepted Answer

A)  MPC is 0.7. 
B)  MPS is 0.3. 
C)  Both of the above answers are correct. 
D)  None of the above answers are correct.

Question 7

When the economy is at full employment and investment increases,in the long run the price level will ________ and,if potential GDP does not change,in the long run real GDP will ________.

Accepted Answer

A)  increase; increase 
B)  decrease; not change 
C)  decrease; decrease 
D)  increase; not change

Question 8

Mauritius,an island off the coast of Africa,competes with other countries producing goods with low-skilled labor. In 2006,it was reported that its "...factories have been exposed to ...competition from China,India and other Asian mass producers." As a result,"the main export industry has seen a 30 per cent reduction in volume ..." www.ft.com,3/13/2006
The decrease in exports will cause ________ and the price level will ________.

Accepted Answer

A)  a downward shift in the AE curve; decrease as the AD curve shifts leftward in the short run 
B)  an upward shift in the AE curve; increase as the AD curve shifts rightward in the long run 
C)  a leftward shift in the AD curve; fall in the short run and rise in the long run 
D)  a leftward shift in the AD curve; rise in the long run as goods become more scarce

Question 9

The government estimates that the fiscal policy multiplier is 2.0.In this case an increase in government expenditure of $500 billion increases real GDP by ________ and results in an increase in induced expenditure of ________.

Accepted Answer

A)  $500 billion; $0 
B)  $500 billion; $500 billion 
C)  $1,000 billion; $1,000 billion 
D)  $1,000 billion; $500 billion

Question 10

Mauritius,an island off the coast of Africa,competes with other countries producing goods with low-skilled labor. In 2006,it was reported that its "...factories have been exposed to ...competition from China,India and other Asian mass producers." As a result,"the main export industry has seen a 30 per cent reduction in volume ..." www.ft.com,3/13/2006
The story describes

Accepted Answer

A)  a decrease in autonomous expenditure. 
B)  a decrease in induced expenditure. 
C)  an unplanned decrease in inventories. 
D)  an increase in equilibrium expenditure.

Question 11

In the very short term,planned investment ________ when GDP changes and planned consumption expenditure ________ when GDP changes.

Accepted Answer

A)  changes; changes. 
B)  changes; does not change 
C)  does not change; changes 
D)  does not change; does not change

Question 12

According to the Keynesian theory,the typical firm

Accepted Answer

A)  changes its prices frequently in response to fluctuations in aggregate demand. 
B)  lowers its prices when inventories are decreasing. 
C)  does not change its prices immediately when aggregate demand fluctuates. 
D)  lowers its prices if sales exceed production.

Question 13

If investment decreases,the AE curve shifts

Accepted Answer

A)  upward and the AD curve shifts rightward. 
B)  downward and the AD curve shifts leftward. 
C)  upward and there is a movement along the AD curve. 
D)  downward and there is a movement along the AD curve.

Question 14

The value of the multiplier in the economy illustrated in the figure above is

Accepted Answer

A)  2.0. 
B)  2.5. 
C)  4.0. 
D)  10.0.

Question 15

-In the above figure,autonomous consumption equals

Accepted Answer

A)  0. 
B)  $4 trillion. 
C)  $12 trillion. 
D)  -$4 trillion.

Question 16

An increase in investment spending results in a ________ the aggregate expenditure curve and ________ the aggregate demand curve.

Accepted Answer

A)  movement along; a shift in 
B)  shift in; a movement along 
C)  shift in; has no effect on 
D)  shift in; a shift in

Question 17

Which of the following makes the multiplier larger?

Accepted Answer

A)  an increase in the marginal propensity to import 
B)  an increase in the tax rate 
C)  an increase in the marginal propensity to consume 
D)  an increase in the marginal propensity to save

Question 18

The positive relationship between consumption expenditure and disposable income is shown by a movement along the consumption function.

Accepted Answer

A) True 
 B)False

Question 19

-The above figure shows the AE curve and 45° line for an economy.
a) If real GDP equals $8 trillion,how do firms' inventories compare to their planned inventories?
b) If real GDP equals $16 trillion,how do firms' inventories compare to their planned inventories?
c) What is the equilibrium level of expenditure?
Why is this amount the equilibrium?

Accepted Answer

The answer of 
-The above figure shows the AE curve...

Question 20

If there are no taxes or imports and MPC = 0.75,the multiplier equals

Accepted Answer

A)  0.25. 
B)  1.33. 
C)  4.0. 
D)  6.0.

Exam 11: Expenditure Multipliers

-In the above figure,the multiplier is equal to

What is the mathematical formula for the multiplier? Why is there a multiplier?

In the Keynesian model of aggregate expenditure,we assume that firms will

The slope of the aggregate expenditure curve increases when the marginal propensity to consume or the marginal propensity to import .

An increase in the value of the multiplier can be caused by

If the multiplier is 3.33 and there are no imports or income taxes,then the

When the economy is at full employment and investment increases,in the long run the price level will and,if potential GDP does not change,in the long run real GDP will .

The government estimates that the fiscal policy multiplier is 2.0.In this case an increase in government expenditure of $500 billion increases real GDP by and results in an increase in induced expenditure of .

In the very short term,planned investment when GDP changes and planned consumption expenditure when GDP changes.