8.6 Multiplier/MPC/MPS

The spending multiplier is:

• 1/MPC
• 1/1+MPC
• 1/1-MPC
• 1/1-MPS

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

Assume MPC is 0.5.  If investment spending increases by $2 billion, GDP will increase by

• $5 billion
• $0.5 billion
• $4 billion
• $2 billion

The marginal propensity to consume refers to the 

• proportion of any change in income that is spent on consumption
• levels of consumption as a proportion of total income
• changes in consumption as a result of higher interest rates
• additional consumption spending on imported goods

When  income is $200 consumption is $140, and when income is $250 consumption is $180. The marginal propensity to consume is

• 0.80
• 0.75
• 0.25
• 0.20

The value of the multiplier will increase if

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