AP Macro: MPC and the Multiplier

The multiplier is:

• 1/MPC
• 1/1+MPC
• 1/MPS
• 1/1-MPS

Assume MPC is 2/3.  If investment spending increases by $2 billion, GDP will increase by

• $3 billion
• $2/3 billion
• $6 billion
• $2 billion

If the MPC is .7 and gross investment spending increase by $3 billion, GDP will

• increase by $10 billion
• increase by 2.1 billion
• decrease by $4.29 billion
• increase by $4.29 billion

The proportion of any change in income that is spent rather than saved is

• the multiplier

• income determinants

• marginal propensity to consume

• macroeconomic equilibrium

Which of the following does NOT shift the AD curve?

• Government Spending

• Investment Spending

• Long run aggregate supply

• Net Exports

Which of the following describes the inflationary gap in the Aggregate Supply and Demand model?

• 
• 
• 
• 

Unemployment is high and GDP is declining. To improve conditions, the government increases spending by $5B. If the MPC is .75, by how much will GDP rise?

• $5B

• $10B

• $15B

• $20B

Inflation is high. If the MPS is .25, how much must government cut in spending to decrease AD by $20B?

• $1B

• $5B

• $10B

• $20B

what is the relationship b/w MPC AND MPS?

• MPC+MPS=0
• MPC=MPS
• MPC+MPS=1
• NONE OF THESE

How much is MPS in an economy when MPC is .8?

• .2
• 3
• 1.6
• .8