Question 1
If the economy has automatic stabilizers built in, the multiplier will
◦ be smaller than it would have been in the absence of automatic stabilizers.
◦ be larger than it would have been in the absence of automatic stabilizers.
◦ be zero.
◦ be infinitely larger than it would have been in the absence of automatic stabilizers.
Question 2
Which of the following statements is
true?
◦ Increases in the interest rate crowd out both consumption and investment spending, and this reduces the size of the multiplier.
◦ Increases in the interest rate crowd out both consumption and investment spending, and this increases the size of the multiplier.
◦ Increases in the interest rate have no effect on the size of the multiplier because higher interest rates cause consumption to increase, which offsets the crowding out of investment.
◦ Increases in the interest rate cause the size of the multiplier to be smaller if the economy is on the flat portion of the
AS curve and to be larger if the economy is on the steep portion of the
AS curve.
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