EC2105
Exam 3, Practice Multiple Choice Questions
Question Set 2
(Spring 2002)
 The
multiplier model makes it possible to estimate how a change in __________
affects equilibrium output.
 The
price level
 Input
costs
 Induced
expenditures
 Autonomous
expenditures
 The
multiplier effect arises because changes in __________ give rise to changes
in __________.
 Production
and income; induced expenditures.
 Production
and income; autonomous expenditures.
 Induced
expenditures; production and income.
 Autonomous
expenditures; production and income.
 The
multiplier model does not answer which of the following questions?
 What
causes changes in autonomous expenditures?
 How
will output be affected by changes in autonomous expenditures?
 How
do induced expenditures change in response to changes in autonomous
expenditures?
 How
will the aggregate demand curve be affected by a change in autonomous
expenditures?
Table 1

Income

Expenditures

$0

$200

100

233

200

267

300

300

400

333

4. Given Table 1, what is the level of autonomous expenditures?
a. $33
b. $200
c. $300
d. $333
5. Given Table 1, what is the level of induced expenditures when income is
$300?
a. $33
b. $100
c. $200
d. $300
 The
expenditure function that reflects Table 1 is:
 AE
= 0.33Y.
 AE
= 200 + 0.33Y.
 Y
= 200 + 0.33AE.
 Y
= 0.33AE.
 In
Table 1, if income rises from $200 to $300, induced expenditures:
 Remain
equal to $200.
 Rise
by $200.
 Rise
by $33.
 Remain
equal to $167.
 In
Table 1, if income rises from $200 to $300, autonomous expenditures:
 Remain
equal to $200.
 Rise
by $200.
 Rise
by $33.
 Remain
equal to $167.
 In
Table 1, the marginal propensity to consume is:
 $200.
 $333.
 0.333.
 0.667.
 If
autonomous expenditures are $1,000, income is $4,000, and the marginal
propensity to consume is 0.75, then total expenditures according to the
expenditure function would be:
 $3,000.
 $4,000.
 $5,000.
 $13,500.
 Given
AE = $2000 + 0.8Y, when income equals $6000, autonomous expenditures will
be:
 $2,000
 $4,800
 $6,000
 $6,800
 Given
AE = $2000 + 0.8Y, when income equals $6000, induced
expenditures will be:
 $2,000
 $4,800
 $6,000
 $6,800
13. Refer to the figure above. The
mpc equals:
 0.25.
 0.50.
 0.75.
 1.00.
14. For levels of income to the left of the point where the expenditure
function intersects the aggregate production line:
a.
Inventories are falling.
b.
Inventories are constant.
c.
Inventories are rising.
d. The
economy is in equilbrium.
15. Suppose you are told that AE = 7000 + 0.8Y.
Using this equation and the multiplier, what will equilibrium income be?
a.
$7,000.
b.
$8,750.
c.
$35,000.
d.
$56,000.
16. Given AE = 2000 + .8Y, when income equals $6,000, expenditures will
be:
a.
$2,000
b.
$4,800
c.
$6,800
d.
$8,000
17. If the mpc is 0.75 and autonomous expenditures are $300,
then the multiplier equation implies that total equilibrium expenditures in the
economy are:
 $225.
 $300.
 $375.
 $1,200.
18. According to the multiplier equation, an increase in the marginal
propensity to consume:
 Decreases
autonomous expenditures.
 Increases
autonomous expenditures.
 Increases
total output.
 Decreases
total output.
19. Suppose autonomous expenditures equal 1,000 and the mpc
is 0.6. Now suppose the mpc rises to 0.75. Using
the multiplier equation, we know that equilibrium income will:
 Increase
by 150.
 Decrease
by 150.
 Increase
by 750.
 Increase
by 1,500.
20. In the multiplier model, if the mpc is 0.6, then the multiplier is:
 0.40.
 2.50
 4.00.
 6.00.
21. If the marginal propensity to save is 0.4, a $100 change in income
will ultimately lead to:
 A
$40 change in expenditures.
 A
$60 change in expenditures.
 A
$100 change in expenditures.
 A
$250 change in expenditures.
22. Refer to the graph above. If the
mpc were to change to .75,
equilibrium real income would be:
 Greater
than $600.
 $600.
 Less
than $600.
 Indeterminate
(you cannot say for sure without more information).
23. Refer to the graph above. If
autonomous expenditures were to change to $250, equilibrium real income would
be:
 Greater
than $600.
 $600.
 Less
than $600.
 Indeterminate
(you cannot say for sure without more information).
24. Suppose that foreign income decreases and this reduces US exports.
The U.S. AE curve will likely:
 Become
steeper.
 Become
flatter.
 Shift
up.
 Shift
down.
25. A multiplier of 8 means that a $80 billion increase in
autonomous investment will:
 Decrease
equilibrium real GDP by $10 billion.
 Increase
equilibrium real GDP by $100 billion.
 Increase
equilibrium real GDP by $640 billion.
 Increase
equilibrium real GDP by $720 billion.
26. Suppose that a $200 billion decrease in autonomous expenditures
causes equilibrium GDP to decline by $500 billion.
What is the multiplier?
 0.2.
 0.4.
 2.5.
 5.0.
27. Because of political unrest in
South Korea
, investment in that country declines by 50.
If the mpc is 0.75, equilibrium
income would likely decline by:
 37.5.
 50.
 87.5.
 200.
28. If the paradox of thrift arises, an increase in saving will:
 Decrease
the price level.
 Increase
the price level.
 Decrease
equilibrium income.
 Increase
equilibrium income.