The Multiplier and National Income Determination
128 questions· page 1 of 13
The diagram shows a closed economy with no government. It is in initial equilibrium when the national income is $1000 million.
If the full employment national income occurs at $800 million, what is the value of the inflationary gap?
Options
A $40 million
B $160 million
C $260 million
D $840 million
In an economy with unemployed resources the marginal propensity to consume is 0.2. The government increases its budget deficit and finances it by selling bonds to the non-bank private sector.
What is the likely consequence of this?
Options
A The currency will depreciate, increasing exports and reducing the trade deficit.
B The increase in real output will be limited as the value of the multiplier is low.
C The money supply will fall, leading to a reduction in aggregate demand.
D There will be a decrease in the rate of interest, causing demand-pull inflation.
In an economy with no government sector or foreign trade, the marginal propensity to consume is 0.6.
If the equilibrium level of national income is $10 000 million and the full employment level of national income is $15 000 million, by how much would investment have to increase to achieve full employment?
Options
A $1666 million
B $2000 million
C $3012 million
D $5000 million
An initial injection into the circular flow of income causes a much larger increase in GDP.
What does this define?
Options
A autonomous investment
B demand-pull inflation
C the accelerator principle
D the national income multiplier
In an economy with no government sector or foreign trade, the marginal propensity to consume is 0.6.
If the equilibrium level of national income is $10 000 million and the full employment level of national income is $15 000 million, by how much would investment have to increase to achieve full employment?
Options
A $1666 million
B $2000 million
C $3012 million
D $5000 million
The diagram shows an economy’s aggregate monetary demand curve, AMD1.
Which level of income will produce the greatest difference between autonomous and induced expenditure?
Options
A income level A on Fig. 14.1
B income level B on Fig. 14.1
C income level C on Fig. 14.1
D income level D on Fig. 14.1
To overcome deflation in an economy the government increases the size of its budget deficit and funds this by increasing the money supply.
What is most likely to reduce the effectiveness of these measures?
Options
A a high marginal propensity to save
B a rise in business confidence
C an inelastic demand for money
D low cash deposit ratios for commercial banks
A government funds an increase in transfer payments to the unemployed by increasing the higher rate of income tax.
What is the most likely impact of this change?
Options
A government borrowing increases
B the incentive to work increases
C the marginal propensity to consume increases
D the quantity of imports increases
In a two-sector economy, autonomous consumer expenditure increases by $100 billion, autonomous investment expenditure increases by $200 billion, and the marginal propensity to consume is 0.5.
What will the increase in National Income be?
Options
A $150 billion
B $300 billion
C $450 billion
D $600 billion
What is a necessary assumption of the Keynesian multiplier model?
Options
A increasing average propensity to save
B flexible costs and prices
C full employment of resources
D open economies