3.4-3.5

Question 1

shows by how many times an increase in any autonomous expenditure increases income

Answer 1

The Multiplier

Question 2

refers to an economic factor that when increased or changed causes increases or changes in many other related economic variables

Answer 2

The Multiplier

Question 3

investment increases when firms anticipate

Answer 3

lower interest rate or higher profits

Question 4

the size of the Multiplier depends on the

Answer 4

slope of the AE curve

Question 5

in the multiplier expression 1/1-b,

b = and 1=

Answer 5

b= marginal propensity to consume
1= total disposable income

Question 6

the steeper the slope of the AE curve the ______ the Multiplier

Answer 6

larger

Question 7

the gentler the slope of the AE curve the _______ the Multiplier

Answer 7

lower

Question 8

is a process spreading overtime

Answer 8

The Multiplier

Question 9

the size of the Multiplier depends on the slope of the AE curve which s determined by

Answer 9

• marginal propensity to consume
• marginal tax rate
• and in an open economy, the marginal rate of imports

Question 10

the higher the MPC the _____ the slope of the AE curve

Answer 10

steeper

Question 11

the higher the marginal rate of imports (MPM) the ______ the slope of the AE curve

Answer 11

gentler

Question 12

the higher the Marginal Tax Rate, the ______ the slope of the AE curve

Answer 12

gentler

Question 13

the 4 other multipliers in addition to Autonomous Expenditure Multiplier

Answer 13

1. government expenditure multiplier (GEM)
2. Autonomous tax multiplier (ATM)
3. Balanced Budget multiplier (BBM)
4. Impact of the Marginal propensity to import (MPM)

Question 14

is the same as the general autonomous expenditure multiplier

Answer 14

GEM

Question 15

GEM is expressed as

Answer 15

GEM = 1/1-b= change in Y/ change in G

Question 16

for a public policy an increase or decrease in government spending has a

Answer 16

multiplier effect on GDP

Question 17

if G increases by $50 million with a Multiplier of 4, what does it cause GDP to do?

Answer 17

increase by $200 million

Question 18

3 things that can cause the Multiplier effect to be reduced

Answer 18

1. if P changes
2. if we are in an open economy
3. if the MTR is positive

Question 19

2 kinds of taxes

Answer 19

induced and autonomous

Question 20

rise and fall as income varies

Answer 20

induced taxes

Question 21

act as automatic stabilizers of the economy

Answer 21

induced taxes

Question 22

if income goes up then the MTR __________ and disposable income _______

Answer 22

• rises to higher level

- is reduced

Question 23

if income goes down MTR ____ and disposable income _____

Answer 23

• falls to lower level

- rises

Question 24

autonomous taxes do not vary with

Answer 24

real GDP

Question 25

autonomous taxes are determined by

Answer 25

the Government

Question 26

an increase in taxes decreases: (3)

Answer 26

- disposable income - consumption - income

Question 27

decrease in Y will be _______ than the increase in taxes

Answer 27

greater

Question 28

the Autonomous Tax Multiplier is expressed as

Answer 28

-b/1-b= change in income/change in taxes

Question 29

The inverse of ATM is the Multiplier associated with

Answer 29

transfers

Question 30

are like negative taxes

Answer 30

transfers

Question 31

The Autonomous Transfer Multiplier is the negative of the

Answer 31

autonomous tax multiplier (ATM)

Question 32

government selectively reduces taxes and loses revenue

Answer 32

tax expenditures

Question 33

the amount where a change in government expenditure is matched by a change in autonomous taxes

Answer 33

Balanced Budget Multiplier (BBM)

Question 34

the BBM is expressed as

Answer 34

1/1-b = -b/1-b or change in Y/ change in G = change in Y/ change in T

Question 35

The Multipliers are true assuming: (3)

Answer 35

1. fixed aggregate price level 2. closed economy 3. MTR is 0

Question 36

what are the 4 phases of the business cycle

Answer 36

1. prosperity 2. crisis 3. depression 4. recovery

Question 37

the BBM requires that the effect of ___ should offset the effect of ____

Answer 37

GEM | ATM

Question 38

aggregate expenditure is calculated assuming a

Answer 38

fixed aggregate price level

Question 39

at a given P, households, firms, governments, exporters and importers make their expenditure decisions and is expressed as:

Answer 39

Y=C+I+G+X-M

Question 40

for each level of P on the AE curve

Answer 40

different level of Y exists

Question 41

the higher the price the lower the

Answer 41

income as measured in real GDP

Question 42

the income effect is also referred to as

Answer 42

the wealth effect

Question 43

if prices rise, wealth

Answer 43

falls

Question 44

with declining income there is movement ____ the ADC curve

Answer 44

up

Question 45

the rising income there is movement ____ the ADC curve

Answer 45

down

Question 46

involves future prices and foreign prices

Answer 46

substitution effect

Question 47

the delay in spending when prices are expected to go down can lead to

Answer 47

deflation

Question 48

aggregate demand is determined by

Answer 48

expectations about future: 1. income 2. prices 3. profit

Question 49

involves taxation and government spending including transfers to households and firms

Answer 49

fiscal policy

Question 50

if government spending goes up, aggregate demand shifts

Answer 50

up

Question 51

taxation takes what to fund government spending

Answer 51

income from households

Question 52

if taxes go down, disposable income goes ____ and aggregate demand shifts ____

Answer 52

up | up

Question 53

if taxes go up, disposable income decreases and the ADC shifts

Answer 53

down

Question 54

monetary policy involves changes in

Answer 54

money supply and interest rate

Question 55

if interest rate goes up, investment goes ___ and the ADC curve shifts _____

Answer 55

down | down

Question 56

if interest rates go down, investments go up and the ADC curve shifts

Answer 56

up

Question 57

if the quantity of money increases, households, firms, and gov. can

Answer 57

spend more

Question 58

if the quantity of money increases the ADC curve shifts

Answer 58

up

Question 59

2 principle global factors influencing domestic aggregate demand are:

Answer 59

1. exchange rate ($Cdn) | 2. foreign income (GDPf)

Question 60

if exchange rates go down, the dollar buys ____ foreign goods, and imports _____

Answer 60

less | decrease

Question 61

if exchange rates go up, the dollar buys _____ foreign goods, and imports ____

Answer 61

more | go up

Question 62

if exchange rates go down, domestic goods become ____ expensive and exports _____

Answer 62

less | increase

Question 63

decrease in imports and increase in exports cause the ADC to shift

Answer 63

up