The Multiplier Effect and the Simple Spending Multiplier: Definition and Examples

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question 1 of 3

How is a person's likelihood to save related to the simple spending multiplier?

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1. How does the multiplier effect resemble a ripple effect through the economy?

2. If $100 of new private investment gets added to the economy, and the marginal propensity to consume is 0.80, by how much will aggregate demand increase?

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About This Quiz & Worksheet

This quiz will primarily test how well you understand and are able to apply what you've learned from the related lesson. The quiz will accomplish this in a variety of ways. Some questions will give you a definition and then ask you to match the definition to a given term. Other questions will provide you with a marginal propensity. You will need to use that to calculate a particular value.

Quiz & Worksheet Goals

The quiz tests you on the following:

  • What the simple spending multiplier is affected by
  • The name for a GDP increase from an increase in aggregate demand
  • How to calculate aggregate demand changes

Skills Practiced

You will practice these skills:

  • Making connections - use understanding of the concept of marginal propensity
  • Interpreting information - verify that you can read information regarding the Multiplier Effect and interpret it correctly
  • Defining key concepts - ensure that you can accurately define main phrases, such as net exports and aggregate demand
  • Problem solving - use acquired knowledge to solve practice problems to calculate real GDP changes and changes in the aggregate demand

Additional Learning

You should also read the corresponding lesson called The Multiplier Effect and The Simple Spending Multiplier: Definition & Examples. This lesson features even more information on the intricacies of the subject, such as these objectives:

  • Describing the Simple Spending Multiplier and its formula
  • Understanding the marginal propensity to consume
  • Characterizing the marginal propensity to save
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