Principles of Economics (9)

What is mpc?

• The proportion of an additional income spent for consumption within one year.

• The proportion of an additional income saved for future consumption.

• The amount of money spent for consumption.

• The amount saved for future consumption.

What is the relation between the mpc and the multiplier?

• The higher the mpc the bigger the multiplier

• The lower the mpc the bigger the multiplier

• The the mpc the multiplier are not related.

• We need more information to tell the relation.

If the government increases the spending by 1 billion and the mpc is 90%, what the the increase in GDP?

• 900 million

• 10 billion

• 9 billion

• 1 billion

Why does the aggregate demand curve (AD) slope downwards?

• a. International substitution effect (high prices discourage exports but increase imports)

• b. Inter-temporal substitution effect

• c. Real balance effect (a decrease in the real value of money as prices rise.

• d. Income effect (purchasing power effect)

• All four answers are correct.

11. The multiplier effect refers to:

• a) the total amount by which GDP rises after an initial injection

• b) the total amount by which GDP falls after an initial injection

• c) the change in GDP brought about by multiple policy changes

• d) the multiple of the initial increase in aggregate demand brought about by a new injection into the economy