Review Econ: Multipliers

What is disposable income?

• The total income a consumer earns

• The amount of income left after paying taxes

• The amount of income saved by a consumer

• The amount of income spent on goods and services

What does the formula for disposable income consist of?

• Disposable income = Personal income - Taxes

• Disposable income = Personal income * Taxes

• Disposable income = Personal income + Taxes

• Disposable income = Personal income / Taxes

What is the average propensity to save?

• The total amount of savings divided by disposable income

• The total amount of spending divided by disposable income

• The portion of disposable income that is saved

• The portion of disposable income that is spent

What does the marginal propensity to consume indicate?

• The percentage of new income that is spent

• The percentage of total income that is saved

• The percentage of new income that is saved

• The percentage of total income that is consumed

How is the spending multiplier calculated in the example of Islandia?

• 1 plus the marginal propensity to save

• 1 plus the marginal propensity to consume

• 1 divided by the marginal propensity to save

• 1 divided by the marginal propensity to consume

What is the effect of a $1,000 increase in autonomous consumption in Islandia?

• A $2,000 increase in Real GDP

• A $3,000 increase in Real GDP

• A $5,000 increase in Real GDP

• A $4,000 increase in Real GDP

What does the tax multiplier formula involve?

• 1 minus the MPC divided by MPS

• MPS divided by MPC

• MPC divided by MPS

• Negative MPC divided by MPS

What is the balanced budget multiplier?

• 0

• 2

• -1

• 1

How does a decrease in taxes by $10 million affect GDP with a tax multiplier of -4?

• Decrease GDP by $40 million

• Increase GDP by $40 million

• No change in GDP

• Decrease GDP by $10 million

What is the impact on GDP if government spending and taxes increase by the same amount?

• GDP decreases by that amount

• GDP increases by double that amount

• GDP increases by that amount

• No change in GDP