MM-1A

What is the formula for the simple expenditure multiplier in a closed economy with no government or foreign trade?

• 1 / (1 - MPC)

• 1 / (MPC)

• 1 - MPC

• 1 / (MPS)

If the marginal propensity to consume (MPC) is 0.8, what is the value of the expenditure multiplier?

• 4

• 5

• 2

• 1.25

Which of the following would increase the value of the expenditure multiplier?

• An increase in taxes

• A decrease in the MPC

• An increase in the MPC

• An increase in imports

When MPC = 0.6, how much would total spending increase if autonomous spending increases by $100?

• $150

• $250

• $400

• $500

If the expenditure multiplier is 4, which of the following is the MPC?

• 0.2

• 0.25

• 0.5

• 0.75

Why does the expenditure multiplier occur in an economy?

• Because changes in aggregate demand directly change output.

• Because initial spending leads to multiple rounds of spending.

• Because changes in government spending impact only GDP.

• Because inflation remains constant.

If MPC = 0.9, and investment spending increases by $200 million, what is the total increase in GDP?

• $1,000 million

• $900 million

• $2,000 million

• $1,800 million

Which of the following is the correct relationship between the marginal propensity to save (MPS) and the expenditure multiplier?

• Multiplier = 1 / MPS

• Multiplier = 1 - MPS

• Multiplier = MPS / MPC

• Multiplier = 1 + MPS

The expenditure multiplier concept assumes that:

• The price level is flexible.

• There are leakages in the circular flow.

• There is no crowding out in the economy.

• Savings are equal to investment.

If the marginal propensity to consume decreases, what happens to the expenditure multiplier?

• It increases.

• It decreases.

• It remains unchanged.

• It equals zero.