Q: Suppose a country's marginal propensity to consume (MPC) is 0.8. What is the value of the multiplier?

$$\text{Multiplier} = \frac{1}{1 - 0.8} = 5$$

Q: If the marginal propensity to save (MPS) is 0.25, what is the value of the multiplier?

$$\text{Multiplier} = \frac{1}{0.25} = 4$$

Q: If an initial increase in investment spending of $$100 million leads to a total increase in GDP of 400 $$million, what is the value of the multiplier?

$$\text{Multiplier} = \frac{400}{100} = 4$$

Question 1

Suppose a country's marginal propensity to consume (MPC) is 0.8. What is the value of the multiplier?

Accepted Answer

$$	ext{Multiplier} = \frac{1}{1 - 0.8} = 5$$

Question 2

If disposable income increases and the average propensity to consume (APC) decreases, what happens to the average propensity to save (APS)?

Accepted Answer

APS increases because $$APC + APS = 1$$

Question 3

Which of the following would cause a rightward shift in the investment demand curve, as shown in the first image?

Accepted Answer

A technological breakthrough that increases expected returns

Question 4

If the marginal propensity to save (MPS) is 0.25, what is the value of the multiplier?

Accepted Answer

$$	ext{Multiplier} = \frac{1}{0.25} = 4$$

Question 5

A decrease in household wealth due to a stock market crash will most likely result in which of the following?

Accepted Answer

A leftward shift of the consumption schedule

Question 6

Which of the following best explains why investment is considered the most volatile component of GDP?

Accepted Answer

Investment is highly sensitive to changes in expectations, profits, and technological innovations

Question 7

If the marginal propensity to consume (MPC) is 0.6, what is the marginal propensity to save (MPS)?

Accepted Answer

$$MPS = 1 - 0.6 = 0.4$$

Question 8

A government increases taxes. According to the study materials, what is the expected effect on the consumption and saving schedules?

Accepted Answer

Both schedules shift downward (to the left)

Question 9

Which of the following scenarios would most likely cause a leftward shift in the investment demand curve?

Accepted Answer

An increase in business taxes

Question 10

If an initial increase in investment spending of $$100 million leads to a total increase in GDP of 400 $$million, what is the value of the multiplier?

Accepted Answer

$$	ext{Multiplier} = \frac{400}{100} = 4$$

Question 11

Which of the following is NOT a non-income determinant of consumption and saving?

Accepted Answer

The marginal propensity to consume (MPC)

Question 12

If the expected rate of return on investment projects falls below the real interest rate, what will likely happen to the quantity of investment demanded?

Accepted Answer

It will decrease

Question 13

Which of the following best describes the relationship between disposable income, consumption, and saving?

Accepted Answer

Disposable income is either consumed or saved, so $$APC + APS = 1$$

Question 14

A firm expects a significant increase in future sales and profits. What is the likely effect on the investment demand curve?

Accepted Answer

The investment demand curve shifts to the right

Question 15

Which of the following is a reason for the instability of investment compared to consumption?

Accepted Answer

Investment is affected by irregular innovation and variable expectations

Question 16

If the marginal propensity to consume (MPC) is 0.75, what is the marginal propensity to save (MPS) and the multiplier?

Accepted Answer

$$MPS = 1 - 0.75 = 0.25$$ and $$	ext{Multiplier} = \frac{1}{0.25} = 4$$

Question 17

Which of the following would most likely cause a decrease in investment demand?

Accepted Answer

An increase in the stock of capital on hand

Question 18

If the marginal propensity to save (MPS) is 0.1, what is the value of the multiplier?

Accepted Answer

$$	ext{Multiplier} = \frac{1}{0.1} = 10$$

Question 19

A country experiences a wave of technological innovation. What is the likely effect on the investment demand curve and GDP?

Accepted Answer

The investment demand curve shifts right, leading to higher GDP

Question 20

If the marginal propensity to consume (MPC) is 0.9, what is the marginal propensity to save (MPS) and the value of the multiplier?

Accepted Answer

$$MPS = 1 - 0.9 = 0.1$$ and $$	ext{Multiplier} = \frac{1}{0.1} = 10$$

Basic Macroeconomic Relationships: Consumption, Saving, Investment, and the Multiplier

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