# What is the size of multiplier if the marginal propensity to consume (MPC) is 0.75?

What is the size of multiplier if the marginal propensity to consume (MPC) is 0.75?.

Prepared by Dr Yeon Kim, Lecturer in Economics KOI, 14 February 2016 Page 1 of 8
BUS103 Introduction to Macroeconomics
Trial MCQs for Final Exam
SECTION A
1. Which of the following statement is not true? Other things remaining the same,
(a) A fall in the price level increases both exports and imports.
(b) A rise in the price level decreases the real value of money.
(c) A fall in the price level increases the quantity of real wealth.
(d) A rise in the price level increases saving.
2. Which of the following statement is true? Other things remaining the same,
(a) A fall in the price level increases both exports and imports.
(b) A rise in the price level increases the real value of money.
(c) A fall in the price level increases the quantity of real wealth.
(d) A rise in the price level decreases saving.
3. Find an incorrect statement.
(a) The short run aggregate supply (SAS) curve slopes upward.
(b) With an inflationary gap, money wage rate begins to fall and the SAS curve shifts rightward.
(c) A leftward shift in the short run aggregate supply (SAS) curve causes stagflation.
(d) In the long run, the quantity of real GDP is equal to potential GDP.
4. Find an incorrect statement.
(a) The short run aggregate supply (SAS) curve slopes upward.
(b) With an inflationary gap, money wage rate begins to rise and the SAS curve shifts leftward.
(c) A leftward shift in the short run aggregate supply (SAS) curve causes stagflation.
(d) In the long run, the quantity of real GDP is greater than potential GDP.
5. With the given money wage rate, as the price level falls below the equilibrium price level, the
quantity of real GDP supplied _______ and the real GDP is _______ than the potential GDP. The
missing words are:
(a) increases; smaller
(b) decreases; greater
(c) increases; greater
(d) decreases; smaller
6. With the given money wage rate, as the price level rises above the equilibrium price level, the
quantity of real GDP supplied _______ and real GDP _______ potential GDP. The missing words are:
Prepared by Dr Yeon Kim, Lecturer in Economics KOI, 14 February 2016 Page 2 of 8
(a) decreases; exceeds
(b) decreases; does not exceed
(c) increases; does not exceed
(d) increases; exceeds
7. Find a correct statement.
(a) If real GDP is below equilibrium GDP, firms start to decrease production.
(b) A smaller increase in aggregate demand than the increase in the long-run aggregate supply (LAS)
brings inflation.
(c) A rise in the money wage rate shifts the SAS curve leftward.
(d) Economic growth means a leftward shift in the long-run aggregate supply (LAS) curve.
8. Find a correct statement.
(a) If real GDP is below equilibrium GDP, firms start to decrease production.
(b) A larger increase in aggregate demand than the increase in the long-run aggregate supply (LAS)
brings inflation.
(c) A rise in the money wage rate shifts the SAS curve rightward.
(d) Economic growth means a leftward shift in the long-run aggregate supply (LAS) curve.
9. Which of the following would lead to an increase in aggregate demand?
(a) A decrease in government expenditure
(b) An increase in exports
(c) A rise in interest rate
(d) A fall in consumption expenditure
10. Which of the following would lead to an increase in aggregate demand?
(a) A fall in interest rate
(b) An decrease in exports
(c) A decrease in government expenditure
(d) A fall in consumption expenditure
11. Suppose an increase in real GDP by \$50 billion results in an increase in disposable income by \$40
billion. This leads to an increase of consumption by \$30 billion. What are the marginal propensity to
consume (MPC) and the marginal propensity to save (MPS)?
(a) 0.60, 0.40
(b) 0.75, 0.25
(c) 0.80, 0.20
(d) 0.33, 0.67
12. Suppose an increase in real GDP by \$30 billion results in an increase in disposable income by \$25
billion. This leads to an increase of consumption by \$20.5 billion. What are the marginal propensity
to consume (MPC) and the marginal propensity to save (MPS)?
(a) 0.85, 0.15
(b) 0.82, 0.18
(c) 0.68, 0.32
(d) 0.37, 0.63
Prepared by Dr Yeon Kim, Lecturer in Economics KOI, 14 February 2016 Page 3 of 8
13. Which of the following is autonomous expenditure (not influenced by real GDP)?
(a) Consumption (C) and Government expenditure (G)
(b) Consumption (C) and Imports (M)
(c) Investment (I) and Government expenditure (G)
(d) Exports (X) and Imports (M)
14. Which of the following is induced expenditure which is influenced by real GDP?
(a) Consumption (C) and Government expenditure (G)
(b) Consumption (C) and Imports (M)
(c) Investment (I) and Government expenditure (G)
(d) Exports (X) and Imports (M)
15. Assume that there are no changes in income tax rates and imports. What is the size of multiplier if
the marginal propensity to save (MPS) is 0.25?
(a) 5
(b) 4
(c) 3
(d) 2
16. Assume that there are no changes in income tax rates and imports. What is the size of multiplier if
the marginal propensity to consume (MPC) is 0.75?
(a) 5
(b) 4
(c) 3
(d) 2

What is the size of multiplier if the marginal propensity to consume (MPC) is 0.75?

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