Practice The Multiplier Effect - 2.2.5 | Chapter 2: Theory of Income and Employment | ICSE Class 12 Economics
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2.2.5 - The Multiplier Effect

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Practice Questions

Test your understanding with targeted questions related to the topic.

Question 1

Easy

Define the multiplier effect in your own words.

💡 Hint: Consider how spending creates more spending.

Question 2

Easy

What is the marginal propensity to consume?

💡 Hint: Think about how much of extra money people tend to spend.

Practice 4 more questions and get performance evaluation

Interactive Quizzes

Engage in quick quizzes to reinforce what you've learned and check your comprehension.

Question 1

What is the multiplier effect?

  • A decrease in spending leads to a decrease in income.
  • An initial spending increase results in a greater increase in income.
  • It has no real impact on employment levels.

💡 Hint: Think about how spending can lead to a domino effect in the economy.

Question 2

True or False: The marginal propensity to consume is inversely related to the multiplier effect.

  • True
  • False

💡 Hint: Consider the relationship between consumption and income generation.

Solve 1 more question and get performance evaluation

Challenge Problems

Push your limits with challenges.

Question 1

If the government increases spending by $1 million and the MPC is 0.8, calculate the expected increase in national income.

💡 Hint: Use the multiplier formula to find the total impact.

Question 2

Analyze how a sudden drop in consumer confidence to an MPC of 0.5 would change the effects of a $1 million investment. What would the implications be on economic growth?

💡 Hint: Re-calculate the multiplier with the new MPC to see the difference.

Challenge and get performance evaluation