## Chapter Eleven: Chapter Quiz -- The Output Multiplier

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1. Given an MPC of 0.75, the value of the simple output multiplier is

0
1
2
4
5

2. The intutive reason that the multiplier works is that

government is the only force with power large enough to change equilibrium output.
an initial change in autonomous Aggregate Demand leads to more output, which gives consumers more income, a portion of which they spend, thus increasing output and income even more.
an initial change in Aggregate Demand leads to an equal and offsetting change in Aggregate Supply.
an initial change in Aggregate Demand leads to higher levels of income, which are then saved.

3. The value of the output multiplier with an MPC of 0.75 and proportinal taxes of 0.20 (20%) is

1
2.5
3.33
5
None of the Above

4. The value of the output multiplier with an MPC of 0.75 and an MPI of 0.05 is

1
2.5
3.33
5
None of the Above

5. The value of the output multiplier with an MPC of 0.8, assuming there is a vertical AS curve is

0
1
2.5
5

6. Suppose that the MPC is 0.8 and there are no proportional taxes. If you want to decrease equilibrium output by \$500, then you must change autonomous Aggregate Demand by

+100
-100
+250
-250
-500

7. Which of the following projects is likely to lead to the largest permanent increase in equilibrium output?

government aid to help flood victims
a new Community College is built with government funds
the government gives a one-month increase in welfare payments

8. Multiplier effects dampen out over time because

people forget about the initial impact of a project completed long ago.
people save more and more income as time goes on.
only a portion of increased disposable income is injected back into the economy.
the MPC is greater than one.

9. The value of the output multiplier shrinks as proportional taxes rise.

True
False

10. A one-time increase in autonomous Aggregate Demand will not lead to any change in equilibrium output once all the multiplier effects have worked through. But a permanent increase in Aggregate Demand permanently increases the equilibrium level of output.

True
False