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CHAPTER 10 Aggregate Expenditures: The Multiplier, Net Exports, and Government Topic Question numbers ___________________________________________________________________________________________________ 1. Multiplier, changes in GDP 1-54 2. Open economy 55-84 3. Mixed economy 85-151 4. Balanced-budget multiplier 152-164 5. Recessionary and inflationary gaps 165-190 6. Applications and critiques 191-199 Last Word 200-201 True-False 202-217 ___________________________________________________________________________________________________ Multiple Choice Questions Multiplier, changes in GDP 1. The multiplier effect means that: A) consumption is typically several times as large as saving. B) a small change in consumption can cause a much larger increase in investment. C) a small increase in investment can cause GDP to change by a larger amount. D) a small decline in the MPC can cause equilibrium GDP to rise by several times that amount. 2. The multiplier is: A) 1/MPC. B) 1/(1 + MPC). C) 1/MPS. D) 1/(1 - MPS). 3. The multiplier is useful in determining the: A) full-employment unemployment rate. B) level of business inventories. C) rate of inflation. D) change in equilibrium GDP resulting from a change in spending. 4. The multiplier is defined as: A) 1 - MPS. Page 1 B) change in GDP initial change in spending. C) change in GDP/initial change in spending. D) change in GDP - initial change in spending. Use the following to answer questions 5-6: 5. The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the highest marginal propensity to consume? A) 1 B) 2 C) 3 D) 4 6. The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier? A) 1 B) 2 C) 3 D) 4 7. If 100 percent of any change in income is spent, the multiplier will be: A) equal to the MPC. B) 1. C) zero. D) infinitely large. 8. The multiplier can be calculated as: A) 1/(MPS + MPC) B) MPC/MPS C) 1/(1 - MPC) D) 1 - MPC = MPS 9. The multiplier: A) occurs only in response to a change in the level of investment spending. B) can be found by taking the reciprocal of the MPS. Page 2 C) occurs only when intended investment increases as GDP increases. D) is measured by the slope of the saving schedule. 10. The size of the multiplier is equal to the: A) slope of the consumption schedule. B) reciprocal of the slope of the consumption schedule. C) slope of the saving schedule. D) reciprocal of the slope of the saving schedule. 11. If the MPS is only half as large as the MPC, the multiplier is: A) 2. B) 3. C) 4. D) 5. 12. The complex multiplier is: A) larger than the simple multiplier because the latter embodies fewer leakages. ... View Full Document

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