Multiplier effect – The number by which a change in investment must be multiplied to result in the final change of total output. Here on MCQs.club we have prepared Multiple Choice Questions (MCQs) on multiplier and accelerator economics that fully cover the difference between multiplier and accelerator, multiplier accelerator interaction, multiplier and accelerator effect/concept/interaction. These MCQs are useful for Competitive exams, Professional Accountancy exams and Business management exams.

Which of the following is true for Multiplier effect?

1. The number by which a change in investment must be multiplied to result in the final change of total output.
2. The concept proposes that an increase in private investment can increase output and employment, and a decrease in investment will cause it to contract.
3. The term multiplier is used to show that the spending done to boost investment has an amplified effect on output.
4. All of the above

Which of the following is true for Marginal rate of tax on income?

1. The percentage of income that is paid to the government in the form of tax.
2. It is also known as the marginal propensity of tax (MPT)
3. Both A&B
4. None

The percentage of income that is used to buy goods and services outside of the domestic economy is called Marginal propensity to import (MPM).

1. True
2. False

Factors and assumptions underlying Multiplier effect include:

1. Marginal Propensity to Consume – How much of income generated through the investment will be spent on other goods and services in the economy.
2. Tax rate – How much of this income will be returned to the government in the form of tax.
3. Fall in the aggregate demand
4. All of the above

The limitations of Multiplier effect include:

1. Elasticity of supply – despite an equal increase in aggregate demand, the overall effect on output is not the same.
2. Time lag – i.e. when the initial investment will be made, and when the full effects of the multiplier will be felt.
3. Both A&B
4. None

In an open economy, the value of the multiplier depends on:

1. The marginal propensity to save
2. The marginal propensity to import
3. The level of taxes
4. All of the above

Which of the following is true for Accelerator effect?

1. Investment levels in an economy are positively related to a change in the rate of GDP
2. It looks at what effect a change in the level of output will have on the rate of investment.
3. If output increases, then firms will have to invest more in order to maintain a higher output.
4. All of the above

Assumptions of the principle of accelerator include:

1. Real profits move with the aggregate output.
2. Resources are considered to be elastic so that investment in new capital goods can be undertaken easily.
3. Money supply especially credit money is considered to be elastic so that funds for induced investment are readily available.
4. All of the above

Limitations of the accelerator theory include:

1. The time and resources to adjust levels of capital stock are not considered in the simple model.
2. There may be spare capacity within the firm which means it does not need to increase net investment by such a large amount – its existing resources could manage.
3. Both A&B
4. None

Important factors that limit the significance of the multiplier include:

1. It is relevant to a demand-deficient economy with high unemployment of resources. If there is full employment, any increase in demand will lead to inflation rather than a growth in the economy.
2. The leakages from the circular flow of income might make the value of the multiplier very low.
3. There may be a long period of adjustment before the benefits of the multiplier are felt.
4. If consumption is unpredictable, measures to influence national income through the multiplier will be impossible to predict too.
5. All of the above

All of the following are correct EXCEPT.

1. The accelerator also works in reverse. A decline in demand for consumer goods will result in a much sharper decline in demand for the capital goods which make them.
2. The accelerator implies that investment, and hence national income, remain high only as long as consumption is rising.
3. The accelerator comes into effect as a consequence of changes in the rate National income.
4. None

Which of the following factor is not used in the multiplier formula for the open economy?

1. Marginal propensity to save
2. Marginal propensity to import
3. Marginal propensity to tax
4. Marginal propensity to export

The concept of the Multiplier discusses:

1. Savings and investments
2. Income and investments
3. Income and expenditure
4. Income and savings

In an economy where, out of every extra £100 of national income, £25 is paid in tax, £10 is spent on imports and £15 is saved, the value of the multiplier will be

1. 2
2. 5
3. 5
4. 10

Which of the following is the basic concept which underlies the accelerator theory of investment?

1. Investment depends on the level of savings
2. Investment is inversely related to the rate of interest
3. Investment is determined by the volume of commercial bank lending
4. Investment rises when there is an increase in the rate of growth of demand in the economy

In a given economy, of each additional £1 of income, 30% is taken in taxes, 10% is spent on imports and 40% is spent on domestically produced goods. The multiplier is:

Multiplier and Accelerator MCQs | Economics

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Multiplier and Accelerator Economics

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