Multiplier Yr 12

The marginal propensity to consume (MPC) in Hamsterville is 0.75

What will be the size of the change in aggregate demand that will occur as a result of a $1 million dollar increase in the government spending component of AD?

• $0.75 million

• $4 million

• $0.25 million

• $3 million

• $1.75 million

Calculate (i) the value of the multiplier and (ii) the change in income if there is an increase in exports of £5 billion and the MPC is 0.6.

• 2, £2 billion

• 2.5, £12.5 billion

• 1.67, £7.46 billion

• £2.5, £8 billion

Assume Gerbilia's marginal propensity to save (MPS) is 0.3

By how much will household consumption increase as a result of an increase in disposable incomes of $2000?

• $600

• 70%

• $2000

• $1400

• $700

The value of the multiplier will increase if

• autonomous investment increases.
• induced investment increases.
• the MPC decreases.
• the MPS decreases.

With an MPS of 0.2, an increase in government spending of $240 m will result in the equilibrium level of income rising by

• $1200m
• $480m
• $960m
• $2400m

Calculate (i) the value of the multiplier and (ii) the change in income if there is an increase in government spending of £10 billion and the MPS is 0.2, the MPT is 0.3 and the MPM is 0.2.

Where:

MPS = marginal propensity to save

MPM = marginal propensity to import

MPT = marginal propensity to tax

• 2, £2.5 billion

• 0, £10 billion

• 1.43, £14.3 billion

• 3.33, £33.3 billion

Lionsville is an open economy with a complex multiplier of 2.5. The current level of GDP is $250m below the full employment level of GDP. For the government to close this gap, it needs to increase its spending by

• $250 million.
• $100 million.
• $10 million.
• $625 million.

In the Startrek economy, a fall in taxation of $20billion results in an increase in national income of $80billion. Thus, in Startrek the MPC is _____ and the value of the multiplier is _______.

• 0.80; 5
• 0.75; 4
• 0.80; 4
• 0.75; 5

If the marginal propensity to consume (MPC) decreases from 0.8 to 0.6, how will the marginal propensity to save (MPS) and the spending multiplier change?

• The MPS increases; spending multiplier decreases

• The MPS decreases; spending multiplier decreases

• The MPS increases; no change in the spending multiplier

• The MPS increases; the spending multiplier increases

• No change to the MPS, the spending multiplier increases

The larger the amount of withdrawals from the circular flow, the higher will be the value of the multiplier.

• True

• False