Cambridge International AS and A Level Economics: The multiplier and propensities (9708) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover outcome 9.1.1 (the multiplier process) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. It is A Level content, since topics 7 to 11 are A Level. All countries and figures are invented, and money is in currency units (cu). Read the study guide and revision notes first. Track progress with the hub and the checklist.

Questions

1. Define the multiplier. [2]

2. In a closed economy with no government, the marginal propensity to consume is 0.9. Investment rises by 25 cu. Calculate the multiplier and the final change in national income. [3]

3. Households in Country L have disposable income of 500 cu and consumption of 460 cu. When disposable income rises to 600 cu, consumption rises to 540 cu.

(a) Calculate the average propensity to consume and to save at 600 cu. [2] (b) Calculate the marginal propensity to consume and to save between the two levels. [2]

4. In Country M the mps is 0.1, the mrt is 0.2 and the mpm is 0.1, each per unit of national income. Government spending rises by 50 cu. Calculate the multiplier and the final change in national income. [4]

5. In Country N, households spend 0.9 of each extra unit of disposable income. The tax rate is 20% of national income and the mpm is 0.12 per unit of national income. Calculate the multiplier and show that adding the marginal withdrawals gives the same answer. [4]

6. In Country P, national income is 2,000 cu, tax revenue is 380 cu and imports are 300 cu. When national income rises to 2,200 cu, tax revenue is 440 cu and imports are 330 cu.

(a) Calculate the art and the apm at national income of 2,000 cu. [2] (b) Calculate the mrt and the mpm between the two levels. [2]

7. In Country Q planned aggregate expenditure is AD = 100 + 0.6Y, where Y is national income in cu.

(a) Calculate AD when Y is 150, 250 and 350. [1] (b) Find equilibrium national income. [1] (c) Explain what happens if national income is 350. [2]

8. Explain why, for the same mps, the multiplier is smaller in an open economy with a government sector than in a closed economy with no government. [4]

9. Country R has these planned behaviours (cu): C = 80 + 0.75Yd, I = 120, G = 150, X = 90, T = 0.2Y, M = 0.15Y, where Yd = Y - T.

(a) Calculate equilibrium national income using the AD approach. [4] (b) Show that planned withdrawals equal planned injections at this level. [2] (c) Government spending falls by 22 cu. Calculate the new equilibrium national income. [2]

10. In Country S the marginal propensity to withdraw is 0.4. The government wants national income to rise by 120 cu. Exports are expected to fall by 10 cu independently. Calculate the rise in government spending needed. [4]

11. Country T has these planned behaviours (cu): C = 60 + 0.8Yd, I = 100, G = 120, X = 80, T = 0.25Y, M = 0.1Y, where Yd = Y - T.

(a) Calculate equilibrium national income. [4] (b) Government spending rises by 36 cu. Calculate the new equilibrium. [2] (c) Instead, the tax rate falls to 20%. Calculate the new equilibrium. [2] (d) Compare the two policies and comment on one reason why the result may be smaller in practice. [2]

Answers

1. The ratio of the final change in national income to the initial change in injections (or autonomous spending) [1]. It exceeds 1 because spending by one household or firm becomes income for another, which is spent again [1]. [2] Examiner insight: A definition that says only “income rises by more than the injection” describes the effect without defining the ratio. Name both the final change and the initial change.

2. k = 1/(1 - mpc) = 1/(1 - 0.9) [1] = 10 [1]. Change in Y = 25 x 10 = 250 cu [1]. [3] Examiner insight: Write the formula before substituting. If you use 1/0.9 by mistake, a visible formula shows the examiner exactly where the slip happened.

3. (a) apc = 540/600 = 0.9 [1]; aps = 60/600 = 0.1 [1]. (b) mpc = (540 - 460)/(600 - 500) = 80/100 = 0.8 [1]; mps = 20/100 = 0.2 [1]. [4] Examiner insight: Average uses the level in one row, marginal uses the change between rows. Dividing the change in consumption by one income level, rather than by the change in income, is a common error.

4. mpw = 0.1 + 0.2 + 0.1 = 0.4 [1]. k = 1/0.4 = 2.5 [1]. Change in Y = 50 x 2.5 [1] = 125 cu [1]. [4] Examiner insight: Include every leakage the question lists. A multiplier of 1/mps alone ignores the tax and import leakages and overstates the effect.

5. k = 1/(1 - mpc(1 - t) + mpm) [1] = 1/(1 - 0.9 x 0.8 + 0.12) = 1/(1 - 0.72 + 0.12) [1] = 1/0.4 = 2.5 [1]. Check: mps(1 - t) + t + mpm = 0.1 x 0.8 + 0.2 + 0.12 = 0.08 + 0.20 + 0.12 = 0.40, so k = 1/0.4 = 2.5 [1]. [4] Examiner insight: A “show that” or “check” instruction asks for the working. State which base the mpc uses; the saving leakage is smaller per unit of national income than per unit of disposable income.

6. (a) art = 380/2,000 = 0.19 [1]; apm = 300/2,000 = 0.15 [1]. (b) mrt = (440 - 380)/(2,200 - 2,000) = 60/200 = 0.30 [1]; mpm = (330 - 300)/200 = 0.15 [1]. [4] Examiner insight: Comment on the result only if asked. Here the mrt exceeds the art, so tax takes a rising share of income; the equal apm and mpm mean imports are rising in line with income.

7. (a) AD = 190, 250, 310 [1]. (b) Y = 100 + 0.6Y, so 0.4Y = 100 and Y = 250 cu [1]. (c) At Y = 350, AD (310) is less than output (350) [1]. Stocks build up, firms cut output, and income falls back towards 250 [1]. [4] Examiner insight: An explanation needs the chain: planned spending below output, unsold stocks, then lower production. Saying “the economy moves back to equilibrium” without the mechanism earns less.

8. In the open economy with government, taxes and imports are leakages as well as saving [1]. Of each extra unit of income, part is taxed away and part is spent on foreign goods, so less is respent on domestic output [1]. Each round of spending is therefore smaller than in the closed economy [1]. The denominator of 1/(mps + mrt + mpm) is larger, so the multiplier and the total change in income are smaller [1]. [4] Examiner insight: Link each leakage to the size of the next round of spending. Listing the three leakages without saying what happens to later rounds is only part of the argument.

9. (a) Autonomous spending = 80 + 120 + 150 + 90 = 440 [1]. Slope of AD = 0.75 x 0.8 - 0.15 = 0.45 [1]. Y = 440 + 0.45Y, so 0.55Y = 440 [1]. Y = 800 cu [1]. (b) Yd = 640; C = 80 + 480 = 560; S = 80 [1]. T = 160; M = 120; withdrawals = 80 + 160 + 120 = 360. Injections = 120 + 150 + 90 = 360, so they are equal [1]. (c) k = 1/0.55 = 1.82 [1]. Change in Y = -22 x 1.82 = -40, so new Y = 760 cu [1]. [8] Examiner insight: Show each of S, T and M separately when checking equilibrium. Give the sign on the change in income when spending falls.

10. Required net injection = 120/k, with k = 1/0.4 = 2.5 [1]. 120/2.5 = 48 cu [1]. Exports will fall by 10, so government spending must offset this as well [1]: 48 + 10 = 58 cu [1]. [4] Examiner insight: Work out the multiplier from the stated propensity first. The net injection, after allowing for other expected changes, is what the multiplier is applied to.

11. (a) Autonomous spending = 60 + 100 + 120 + 80 = 360 [1]. Slope = 0.8 x 0.75 - 0.1 = 0.5 [1]. Y = 360/(1 - 0.5) [1] = 720 cu [1]. (b) k = 1/0.5 = 2 [1]. Change in Y = 2 x 36 = 72, so Y = 792 cu [1]. (c) New slope = 0.8 x 0.8 - 0.1 = 0.54 [1]. Y = 360/0.46 = 782.6 cu [1]. (d) The spending rise gives +72 cu and the tax cut +62.6 cu [1]. The first-round injection is fully spent in the spending case, but only part of the tax cut is spent. In practice, either may give less if the economy is near full capacity, so more of the extra demand raises prices [1]. [10] Examiner insight: A tax cut changes the slope of AD and a spending rise shifts it, so do not apply the old multiplier to a tax change. Support a comparison with both numbers.

Where marks are usually lost

• Using 1/mpc, or 1/(1 - mps), in place of 1/(1 - mpc) or 1/mps.
• Missing a leakage that the question lists.
• Dividing a total change in AD, rather than the autonomous change, by the multiplier.
• Applying the old multiplier after the tax rate has changed.
• Using average formulae for marginal questions, or the reverse.
• Mixing disposable income and national income without converting.
• Dropping the sign when injections fall.
• Quoting the multiplier as certain, with no mention of capacity or time.
• Leaving out units (cu) from money answers, or giving a ratio such as the mpc with units.

Next steps

• Review the revision notes and the study guide.
• Return to the Cambridge A Level Economics hub and the printable checklist.
• Try all the free 10-minute diagnostics.
• Book a free trial class at /trial/.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment, section 9.1.1.