Q: If the marginal propensity to consume (MPC) is 0.75, what is the value of the simple multiplier?

$$\text{Multiplier} = \frac{1}{1 - 0.75} = 4$$

Question 1

Which of the following best describes the Consumer Price Index (CPI)?

Accepted Answer

A measure of the average prices of a fixed basket of goods and services over time.

Question 2

If the nominal interest rate is 5% and the inflation rate is 2%, what is the realized real interest rate?

Accepted Answer

$$5\% - 2\% = 3\%$$

Question 3

According to the quantity theory of money, if the money supply ($$M) $$increases by 10% and velocity ($$V) $$and real output ($$Q) $$are constant, what happens to the price level ($$P$$)?

Accepted Answer

$$P$$ increases by 10\%$

Question 4

Which of the following scenarios best illustrates cost-push inflation?

Accepted Answer

A sudden increase in oil prices raises production costs for many firms, leading to higher prices and increased unemployment.

Question 5

Which of the following is NOT a limitation of the Consumer Price Index (CPI) as a measure of the cost of living?

Accepted Answer

CPI understates the increase in the cost of living.

Question 6

Suppose the aggregate expenditure function is $$AE = 400 + 0.6Y. $$What is the equilibrium level of real GDP ($$Y$$)?

Accepted Answer

$$Y = 1000$$

Question 7

If the marginal propensity to consume (MPC) is 0.75, what is the value of the simple multiplier?

Accepted Answer

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

Question 8

Which of the following would cause a rightward shift in the long-run aggregate supply (LAS) curve?

Accepted Answer

An increase in the quantity or quality of inputs.

Question 9

If the Bank of Canada raises its policy interest rate, what is the most likely short-run effect on aggregate demand?

Accepted Answer

Aggregate demand decreases due to higher borrowing costs.

Question 10

Which of the following best describes the effect of an appreciating Canadian dollar ($$C) on $$the economy?

Accepted Answer

It decreases net exports, causing a negative aggregate demand shock.

Question 11

Given the consumption function $$C = 0.8Y - 80$$ and imports $$IM = 0.3Y$$, with $$I = 250$$, $$G = 150$$, and $$X = 180$$, what is the aggregate planned expenditure ($$AE) as a $$function of $$Y$$?

Accepted Answer

$$AE = 500 + 0.5Y$$

Question 12

Which of the following is a leakage in the circular flow model?

Accepted Answer

Savings (S)

Question 13

If injections exceed leakages in the circular flow model, what happens to real GDP ($$Y$$)?

Accepted Answer

Real GDP increases.

Question 14

Which of the following is NOT a function of money?

Accepted Answer

A means of production.

Question 15

Suppose the Bank of Canada lowers the overnight rate. What is the likely effect on the Canadian dollar and net exports?

Accepted Answer

The Canadian dollar depreciates, and net exports increase.

Question 16

Which of the following best explains why deflation can be more harmful than low inflation?

Accepted Answer

Deflation causes consumers to postpone spending, leading to economic contraction and higher unemployment.

Question 17

Which of the following would cause a leftward shift in the short-run aggregate supply (SAS) curve but not the long-run aggregate supply (LAS) curve?

Accepted Answer

A rise in input prices.

Question 18

If the marginal propensity to import (MPIM) is 0.3, what fraction of an increase in income is spent on imports?

Accepted Answer

$$0.30 of $$each additional dollar of income.

Question 19

Which of the following best describes the Phillips Curve in the short run?

Accepted Answer

An inverse relationship between unemployment and inflation.

Inflation, Aggregate Supply and Demand, and Monetary Policy: Core Concepts in Macroeconomics

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