Economic Multiplier Concept Quiz

Explore the concept of economic multipliers with key questions on investment, fiscal policies, and their effects on economies.

Practice Learn Test

What is the Economic Multiplier Concept?

A measure of inflation rate

A theory that explains how initial spending leads to increased economic activity

A method for calculating GDP

A principle in international trade

Which of the following is NOT a type of economic multiplier?

Government Spending Multiplier

Tax Multiplier

Import-Export Multiplier

Investment Multiplier

Which of the following accurately describes the concept of the marginal propensity to consume (MPC)?

It represents the proportion of income that households save.

It represents the proportion of additional income that households consume.

It represents the proportion of income that households pay in taxes.

It represents the proportion of income that households invest.

What is the role of government spending in the multiplier effect?

Government spending has no impact on the multiplier effect.

Government spending decreases the multiplier effect.

Government spending increases the multiplier effect.

Government spending determines the size of the multiplier effect.

What is the formula for the investment multiplier?

1 / (1 - MPC)

1 / MPS

1 / (1 + MPC)

(1 + MPC) / MPC

Which of the following factors affects the size of the fiscal multiplier?

The level of government debt

The country's trade balance

The elasticity of aggregate demand

The unemployment rate

What is the difference between the expenditure multiplier and the tax multiplier?

Expenditure multiplier measures the effect of changes in government spending, while tax multiplier measures the effect of changes in taxes.

Expenditure multiplier measures the effect of changes in taxes, while tax multiplier measures the effect of changes in government spending.

Both measure the same economic concept but from different perspectives.

There is no difference between the two.

Which of the following is NOT a limitation of the multiplier concept?

Assumption of full employment

Assumption of fixed prices

Assumption of constant marginal propensity to consume

Assumption of no government intervention

In a closed economy, the expenditure multiplier formula is:

1 / (1 - MPC)

1 / MPS

(1 + MPC) / (1 - MPC)

(1 + MPC) / MPC

#10

What is the relationship between the marginal propensity to consume (MPC) and the size of the fiscal multiplier?

There is no relationship between MPC and the fiscal multiplier

Higher MPC leads to a smaller fiscal multiplier

Higher MPC leads to a larger fiscal multiplier

The fiscal multiplier is independent of MPC

#11

How does the accelerator effect relate to the multiplier effect?

They are unrelated concepts in economics.

The accelerator effect is another term for the multiplier effect.

The accelerator effect and the multiplier effect work against each other.

The accelerator effect amplifies the multiplier effect.

#12

Which of the following is an example of an external shock that can affect the size of the multiplier?

Change in consumer preferences

Increase in government spending

Global financial crisis

Expansionary monetary policy

#13

What is the paradox of thrift in relation to the multiplier concept?

It states that increased saving leads to a decrease in aggregate demand and can worsen economic downturns.

It suggests that government intervention is necessary to boost savings and investment.

It argues that higher taxes lead to increased consumption and investment.

It describes the situation where increased spending leads to a decrease in overall wealth.

#14

What happens to the multiplier effect in an open economy compared to a closed economy?

It is larger in an open economy.

It is smaller in an open economy.

It remains the same regardless of whether the economy is open or closed.

It depends on other factors and cannot be generalized.