Deck 44: The Multiplier

Question 1

Whats defention of terms:
-export multiplier

Answer 1

measures the total effect on national income as a result of a change in exports

Question 2

Whats defention of terms:
-government multiplier

Answer 2

expresses the amount by which total national income is increased by a one-time increase in government spending

Question 3

Whats defention of terms:
-investment multiplier

Answer 3

measures the total effect on national income of an initial increase in investment

Question 4

Whats defention of terms:
-Accelerator

Question 5

Explain how a given increase in spending by government, investors, or foreigners may cause a much larger (multiplied) effect on consumption and GDP.
-Define the government multiplier. Explain how it calculates the total growth of national income that results.

Question 6

Explain how a given increase in spending by government, investors, or foreigners may cause a much larger (multiplied) effect on consumption and GDP.
-Define the investment multiplier. Explain how it calculates the total growth of national income that results.

Question 7

Explain how a given increase in spending by government, investors, or foreigners may cause a much larger (multiplied) effect on consumption and GDP.
-Define the import multiplier. Explain how it calculates the total growth of national income that results.

Question 8

Discuss how the multiplied impact on the economic process may help push the economy up rapidly or help push the economy down rapidly.
-Describe the process of how the multiplier impacts the economy. Explain each step of the process.

Question 9

Discuss how the multiplied impact on the economic process may help push the economy up rapidly or help push the economy down rapidly.
-Explain how government would use knowledge of multiplier effect to stimulate the economy. Slow down the economy.

Question 10

List and describe limitations of the multiplier.
-What happens to the multiplier if people do not spend much (or any) of their additions to income? Explain.

Question 11

List and describe limitations of the multiplier.
-What is the impact on the economy if the government has to borrow money to spend?

Question 12

Explain how a given increase in aggregate demand or national income may cause a much larger (multiplied) effect on investment.
-Describe what effect changing national income has on investment. Why is the impact on investment larger than the change in income?

Question 13

Explain how a given increase in aggregate demand or national income may cause a much larger (multiplied) effect on investment.
-How does a firm decide how much money to invest in future production?

Question 14

Discuss the impact of the accelerator and how it may push the economy up rapidly or help push the economy down rapidly.
-If businesses are optimistic, how will that affect investment decisions? How will investment decisions impact output?

Question 15

Discuss the impact of the accelerator and how it may push the economy up rapidly or help push the economy down rapidly.
-If there is a sudden drop in investment, what will happen to other macroeconomic measures of the economy?

Question 16

List and describe limitations of the accelerator.
-State some of the simplifying assumptions used to develop the multiplier. Explain what happens if the assumptions do not hold.

Question 17

List and describe limitations of the accelerator.
-Explain how access to financing might impact investment and the accelerator.

Question 18

The multiplier effect

A) measures how much a price increase for one good will affect the exchange rate.
B) measures how much a price increase for one good will affect the overall rate of inflation.
C) measures how much a new injection of spending will affect overall GDP.
D) measures how much a new injection of spending will affect the overall rate of inflation.

Question 19

What is the government multiplier?

A) It measures how much total national income is increased by an increase in government spending.
B) It measures how much government spending is increased each year.
C) It measures how much government collects in tax revenues each year.
D) It measures how much government budgets are affected by the rate of inflation.

Question 20

Assume that government spending increases by $1 billion and national income increases by $10 billion. What is the government multiplier?

A) 0.10
B) 1.0
C) 10
D) 100

Question 21

Assume that Sam's marginal propensity to consumer is 90%. How much will his consumption increase this year when he receives his raise of $1000?

A) $90
B) $900
C) $1000
D) $100

Question 22

Assume that the marginal propensity to consume in the US is currently 95%. If the government increases spending by $1 billion, how much will national income increase?

A) $95 million.
B) $95 billion.
C) $5 billion.
D) $20 billion

Question 23

Assume that the marginal propensity to consume in the US is currently 99%. What is the marginal propensity to save?

A) 10%
B) 1%
C) 9%
D) .01%

Question 24

If the objective of government policy during a recession is to increase aggregate demand, then it should

A) raise income taxes.
B) increase government spending.
C) decrease government transfers.
D) decrease government spending.

Question 25

The effect of changes in national income on investment is measured by

A) the multiplier
B) the accelerator
C) the marginal propensity to invest
D) the interest rate

Question 26

Assume that business analysts predict that it will take $60,000 of new equipment to increase output of hats by $20,000 each year. What is the accelerator for the hat industry?

A) 0.33
B) 3
C) 33
D) 30%

Question 27

The accelerator model suggests that the most important determinant of investment is

A) the interest rate
B) the level of consumer demand.
C) changes in consumer demand.
D) the level of current GDP