1.The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because: a)
1.The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because:
a)the real-world MPS is larger than the MPS in the examples.
b)the MPC in the United States is greater than 1.
c)in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.
d)the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts.
2.If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase:
a)GDP by $20 billion.
b) saving by $25 billion.
c) GDP by $120 billion.
d) consumption by $80 billion
3. Other things equal, serious recession in the economies of U.S. trading partners will:
a)cause inflation in the U.S. economy.
b) depress real output and employment in the U.S. economy.
c) have no perceptible impact on the U.S. economy.
d) stimulate real output and employment in the U.S. economy.
4.Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP, then
a)inflation will occur domestically.
b) U.S. real GDP will rise.
c) U.S. GDP will fall.
d)unemployment will decrease domestically
5.Assume that in a private closed economy consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus:
a)unplanned decreases in inventories of $10 billion will occur.
b)saving is $10 billion.
c)the MPC is .80.
d)unplanned increases in inventories of $10 billion will occur.
6.If the dollar appreciates relative to foreign currencies, we would expect:
a)the multiplier to decrease.
b) a country's net exports to fall.
c) a country's exports and imports to both fall.
d) a country's net exports to rise.
Which of the following best explains why prices tend to be inflexible even when demand changes?
a)Production costs do not tend to change when a firm varies its level of output.
b) Government regulations limit the number of times a firm can change prices in a year.
c) In most industries the profit-maximizing price does not change even when demand changes.
d) Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.
If a $50 billion decrease in investment spending causes income to decline by $50 billion in the first round of the multiplier process and by $25 in the second round, the multiplier in the economy is: