The multiplier effect

What is the spending multiplier effect?

• A decrease in government spending leading to a reduced effect on GDP

• An initial injection of spending leading to a reduced effect on GDP

• An initial injection of spending leading to an amplified effect on GDP

• A policy that multiplies government spending without affecting GDP

What does MPC stand for in economic terms?

• Marginal propensity to consume

• Marginal propensity to calculate

• Marginal propensity to create

• Marginal propensity to compound

How is the spending multiplier calculated?

• 1 / (1 - MPC)

• MPC / (1 - MPC)

• 1 - MPC

• 1 / MPC

If the MPC is 0.8, what is the value of the spending multiplier?

• 2

• 4

• 5

• 10

What does an MPC of 0.8 imply about consumer behavior for every dollar increase in income?

• 80 cents is consumed and 20 cents is saved

• 20 cents is consumed and 80 cents is saved

• 50 cents is consumed and 50 cents is saved

• 80 cents is saved and 20 cents is consumed

What is the marginal propensity to save (MPS)?

• The change in savings when there is a change in consumption

• The change in consumption when there is a change in savings

• The change in savings when there is a change in disposable income

• The change in disposable income when there is a change in savings

Because of the spending multiplier effect, an increase in government spending of $1 million is likely to lead to...

• an increase in real GDP of more than $1 million.

• an increase in real GDP equal to $1 million.

• an increase in real GDP of less than $1 million.

• no change in real GDP.