The Econoland Test

What is the value of the tax multiplier if the MPC is 0.80?

• 4

• 3

• 5

• 2

What is the value of the government spending multiplier if the MPC is 0.67?

• 3

• 2

• 4

• 1.5

What is the tax multiplier if the MPS is 0.25?

• 3

• 2

• 4

• 5

How could the multiplier be used to explain wide swings in income (which could be called business cycles) in Econoland?

• Small changes in expenditure are magnified by the multiplier effect.

• The multiplier effect only affects large economies.

• The multiplier effect reduces the impact of fiscal policy.

• The multiplier effect is irrelevant to business cycles.

The numerical value for the investment and government spending multiplier increases as the

• value of the marginal propensity to save decreases

• value of the average propensity to consume increases

• value of the marginal propensity to consume decreases

• value of the marginal propensity to save increases

• value of the average propensity to consume decreases

If the government spending multiplier is 5 in Econoland, the value of the tax multiplier must be

• 5

• 4

• 1

• -5

Econoland has these values for income and consumption. Use this data to answer the question.

The government spending multiplier in Econoland is

• 3

• 4

• 5

• 10

• 30

Econoland has these values for income and consumption. Use this data to answer the question.

If there is an increase in taxes of $200 in Econoland, the decrease in GDP will be

• $100

• $200

• $400

• $600

• $800

Econoland has the following values for income and consumption. Use this data to answer the question.

If there is an increase in government spending of $100 and an increase in taxes of $100 in Econoland, then the change in GDP will be

• $50

• $100

• $200

• -$100

• -$200

The people of Econoland need to understand multipliers because:

• it helps in economic forecasting.

• it is a part of their cultural heritage.

• it is required for tax calculations.

• it is necessary for agricultural development.