1. If the MPS = 0.2, then the multiplier equals: *

4

5

9

10

2.   Suppose that a financial crisis decreasesinvestment spending by $200 billion and the marginal propensity toconsume is 0.75. Assuming no taxes and no trade, real GDP will_____ by _____.

decrease; $500 billion

decrease; $200 billion

decrease; $800 billion

increase; $400 billion

3. An increase in the marginal propensity to consume:

increases the multiplier.

shifts the autonomous investment line upward.

decreases the multiplier.

shifts the autonomous investment line downward.

4. A smaller marginal propensity to save will:

make the multiplier smaller.

make the multiplier larger.

not affect the value of the multiplier.

increase the interest rate.