1)The multiple by which an initial change in aggregate spending will alter total expenditure after an infinite number of spending cycles is the

a)GDP gap.

b)Business cycle.

c)Velocity of money.

d)Multiplier.

2.A country's export ratio is

a)the ratio of the country's imports to its exports.

b)The ratio of net exports to net imports.

c)The ratio of imports to GDP.

d)the country's exports as a percentage of its GDP.

3.A country has a comparative advantage in a good if

a)It also has an absolute advantage in the production of the good.

b)It can produce a good at a lower opportunity cost relative to another country.

c)It can specialize only in two goods.

d)It can produce more of the good than another country.

1. Our first answer is Option D.

In economics, the multiplier is a factor that determines how much of the total GDP would increase in response to an initial spending by the government. For example, if the government spends $100 for investment and the resulting increase in GDP is $150, then the value of multiplier is as follows:

• $150 / $100
• =1.5

The multiplier is determined by the marginal propensity to consume, which is the proportion of total income that an individual consumes. The formula for the multiplier is as follows:

• 1/(1-MPC)

As a reminder, MPC is the abbreviation for the marginal propensity to consume.

2. For this question, our answer again is Option D.

The export ratio refers to the value of a country's exports as a percentage of its GDP. For example if a country exports goods worth $200 billion and the value of its GDP is $1 trillion, then the export ratio is calculated as follows:

• (200/1000) * 100, which equals 20%

3. Our answer for this question is Option B.

A country has comparative advantage with a good if it can produce that good at a lower opportunity cost as compared to the other country. Opportunity cost here refers to the production of one good that has to be given up in order to produce another good. For example, there are two countries--country A and country B. Both of these countries produce two goods--cars and bicycles. Suppose in country A, the production of two bicycles has to be given up in order to produce one car. In country B, production of three bicycles has to be given up in order to produce one car. As we can see, that opportunity cost is less in country A. Therefore, it has a comparative advantage in the production of cars.