1. If the marginal propensity to consume is 4/5, the multiplieris: a. 20. b. 5.

Question

1. If the marginal propensity to consume is 4/5, the multiplieris:
a. 20.
b. 5.
c. 1.
d. 1/5.
e. 5/4.

2. The federal government buys $10 million worth of aircraftengines from General Motors. If the MPC is 0.80 what will be theimpact on aggregate demand, other things being equal?
a. Aggregate demand will increase $8 million.
b. Aggregate demand will increase $10 million.
c. Aggregate demand will increase $12.5 million.
d. Aggregate demand will increase $18 million.
e. Aggregate demand will increase $50 million.

3. The federal government buys $15 million worth of surplus farmproducts from the nation's farmers in
order to provide food supplements for the subsidized milk and lunchprogram. If the MPC is 0.90 what will be the impact on aggregatedemand, other things being equal?
a. Aggregate demand will increase $150 million.
b. Aggregate demand will increase $80 million.
c. Aggregate demand will increase $30 million.
d. Aggregate demand will increase $16.7 million.
e. Aggregate demand will increase $13.5 million.

4. To achieve a $500 billion increase in AD, if the MPC is 0.8,what increase in government purchases would be called for?
a. $625 billion
b. $500 billion
c. $400 billion
d. $100 billion

5. If MPC = 0.8, a $200 billion increase in government purchaseswould have what size effect on the "first round" of induced addedconsumption?
a. $80 billion
b. $160 billion
c. $200 billion
d. $800 billion

Explanation / Answer

2. e 3. a 4. d 5. b

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