Question 1

Nobel laureate Franco Modigliani found that decreases in wealth cause:

Accepted Answer

A)  decreases in autonomous consumption. 
B)  increases in the marginal propensity to consume. 
C)  increases in autonomous consumption. 
D)  decreases in the marginal propensity to consume. 
A)  decreases in autonomous consumption. 
B)  increases in the marginal propensity to consume. 
C)  increases in autonomous consumption. 
D)  decreases in the marginal propensity to consume.

Question 2

Determine the impact of an increase in government spending of $10 billion when the marginal propensity to consume is 0.8. Determine the impact of a decrease in government spending of $5 billion when the marginal propensity to save is 0.25.

Accepted Answer

The government spending multiplier will

Question 3

Assuming no government or foreign sector, if the marginal propensity to consume is 0.8, the multiplier is:

Accepted Answer

A)  0.8. 
B)  5. 
C)  0.2. 
D)  1.25. 
A)  0.8. 
B)  5. 
C)  0.2. 
D)  1.25.

Question 4

Disposable income is equal to total income minus net taxes.

Accepted Answer

A) True 
 B)False

Question 5

-Refer to Table 11.2. At an aggregate output level of $200, inventories will:

Accepted Answer

A)  decrease by 100. 
B)  increase by 50. 
C)  decrease by 150. 
D)  increase by 150. 
A)  decrease by 100. 
B)  increase by 50. 
C)  decrease by 150. 
D)  increase by 150.

Question 6

If the economy finds itself at a point where planned spending is equal to output, then we will expect to see:

Accepted Answer

A)  an increase in inventories. 
B)  a decrease in planned spending. 
C)  a decrease in inventories. 
D)  no change in inventories. 
A)  an increase in inventories. 
B)  a decrease in planned spending. 
C)  a decrease in inventories. 
D)  no change in inventories.

Question 7

Recall Application 3, "John Maynard Keynes: A World Intellectual," to answer the following questions:
-According to the application, Keynes last major public service was in the Bretton Woods Conference.

Accepted Answer

A) True 
 B)False

Question 8

If the government collects taxes using a constant income tax rate t, then the adjusted marginal propensity to consume (adjusted MPC) is:

Accepted Answer

A)  t ( 1 - b). 
B)  b ( 1 - t ). 
C)  1 (1- bt). 
D)  bt - t. 
A)  t ( 1 - b). 
B)  b ( 1 - t ). 
C)  1 (1- bt). 
D)  bt - t.

Question 9

Recall Application 3, "John Maynard Keynes: A World Intellectual," to answer the following questions:
-According to the application, Keynes argued in his book The General Theory of Employment, Interest and Money that

Accepted Answer

A)  economies would be able to automatically recover from economic downturns. 
B)  economies would be able to automatically recover from economic booms. 
C)  economies would not be able to automatically recover from economic booms. 
D)  economies would not be able to automatically recover from economic downturns. 
A)  economies would be able to automatically recover from economic downturns. 
B)  economies would be able to automatically recover from economic booms. 
C)  economies would not be able to automatically recover from economic booms. 
D)  economies would not be able to automatically recover from economic downturns.

Question 10

The larger the marginal propensity to consume, the smaller the multiplier.

Accepted Answer

A) True 
 B)False

Question 11

-Refer to Table 11.2. The equilibrium level of aggregate output equals:

Accepted Answer

A)  $400. 
B)  $600. 
C)  $800. 
D)  $1,000. 
A)  $400. 
B)  $600. 
C)  $800. 
D)  $1,000.

Question 12

The government spending multiplier in a closed economy is the same as the government spending multiplier in an open economy, if the marginal propensity to import equals zero.

Accepted Answer

A) True 
 B)False

Question 13

Changes in consumer confidence, based on household surveys change consumer spending, because it helps consumers predict their spending. Increases in consumer confidence increases the autonomous consumption while a decrease in consumer confidence decreases consumer spending.

Accepted Answer

Changes in consumer confidence, based on

Question 14

Explain why the marginal propensity to consume and the marginal propensity to save must sum to one.

Accepted Answer

The MPS and the MPC must sum to one beca

Question 15

Assume that consumption is represented by the following: C = 400+ 0.75Y. Also assume that investment (I) equals 100.
(a) Given the information, calculate the equilibrium level of income.
(b) Given the information, calculate the level of consumption and saving that occurs at the equilibrium level of income.
(c) Suppose investment increases by 100. Calculate the new equilibrium level of income.
(d) Will the level of saving and consumption change as the economy adjusts to this change in investment? Explain.

Accepted Answer

(a) Y = 2,000
(b) C = 1,900 an

Question 16

As the economy expands, unemployment rises, and the result is an increase in unemployment benefits.

Accepted Answer

A) True 
 B)False

Question 17

-Refer to Table 11.6. The equilibrium level of income is:

Accepted Answer

A)  4,600. 
B)  4,800. 
C)  5,800. 
D)  5,600. 
A)  4,600. 
B)  4,800. 
C)  5,800. 
D)  5,600.

Question 18

The government spending multiplier is positive because _______ in government spending cause _______ in GDP.

Accepted Answer

A)  decreases; increases 
B)  increases; decreases 
C)  increases; no change 
D)  decreases; decreases 
A)  decreases; increases 
B)  increases; decreases 
C)  increases; no change 
D)  decreases; decreases

Question 19

In our most basic model of the economy, the only expenditures made are:

Accepted Answer

A)  consumption and government only. 
B)  consumption only. 
C)  investment only. 
D)  consumption and investment. 
A)  consumption and government only. 
B)  consumption only. 
C)  investment only. 
D)  consumption and investment.

Question 20

The formula for the tax multiplier is:

Accepted Answer

A)  MPS/MPC. 
B)  - MPC/MPS. 
C)  - 1/MPS. 
D)  - MPS/MPC. 
A)  MPS/MPC. 
B)  - MPC/MPS. 
C)  - 1/MPS. 
D)  - MPS/MPC.

Nobel laureate Franco Modigliani found that decreases in wealth cause:

Determine the impact of an increase in government spending of $10 billion when the marginal propensity to consume is 0.8. Determine the impact of a decrease in government spending of $5 billion when the marginal propensity to save is 0.25.

Assuming no government or foreign sector, if the marginal propensity to consume is 0.8, the multiplier is:

Disposable income is equal to total income minus net taxes.

-Refer to Table 11.2. At an aggregate output level of $200, inventories will:

If the economy finds itself at a point where planned spending is equal to output, then we will expect to see:

Recall Application 3, "John Maynard Keynes: A World Intellectual," to answer the following questions: -According to the application, Keynes last major public service was in the Bretton Woods Conference.

If the government collects taxes using a constant income tax rate t, then the adjusted marginal propensity to consume (adjusted MPC) is:

Recall Application 3, "John Maynard Keynes: A World Intellectual," to answer the following questions: -According to the application, Keynes argued in his book The General Theory of Employment, Interest and Money that

The larger the marginal propensity to consume, the smaller the multiplier.

-Refer to Table 11.2. The equilibrium level of aggregate output equals:

The government spending multiplier in a closed economy is the same as the government spending multiplier in an open economy, if the marginal propensity to import equals zero.

Changes in consumer confidence, based on household surveys change consumer spending, because it helps consumers predict their spending. Increases in consumer confidence increases the autonomous consumption while a decrease in consumer confidence decreases consumer spending.

Explain why the marginal propensity to consume and the marginal propensity to save must sum to one.

As the economy expands, unemployment rises, and the result is an increase in unemployment benefits.

-Refer to Table 11.6. The equilibrium level of income is:

The government spending multiplier is positive because _ in government spending cause _ in GDP.

In our most basic model of the economy, the only expenditures made are:

The formula for the tax multiplier is:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 11: The Income-Expenditure Model

Nobel laureate Franco Modigliani found that decreases in wealth cause:

Determine the impact of an increase in government spending of $10 billion when the marginal propensity to consume is 0.8. Determine the impact of a decrease in government spending of $5 billion when the marginal propensity to save is 0.25.

Assuming no government or foreign sector, if the marginal propensity to consume is 0.8, the multiplier is:

Disposable income is equal to total income minus net taxes.

-Refer to Table 11.2. At an aggregate output level of $200, inventories will:

If the economy finds itself at a point where planned spending is equal to output, then we will expect to see:

Recall Application 3, "John Maynard Keynes: A World Intellectual," to answer the following questions: -According to the application, Keynes last major public service was in the Bretton Woods Conference.

If the government collects taxes using a constant income tax rate t, then the adjusted marginal propensity to consume (adjusted MPC) is:

Recall Application 3, "John Maynard Keynes: A World Intellectual," to answer the following questions: -According to the application, Keynes argued in his book The General Theory of Employment, Interest and Money that

The larger the marginal propensity to consume, the smaller the multiplier.

-Refer to Table 11.2. The equilibrium level of aggregate output equals:

The government spending multiplier in a closed economy is the same as the government spending multiplier in an open economy, if the marginal propensity to import equals zero.

Changes in consumer confidence, based on household surveys change consumer spending, because it helps consumers predict their spending. Increases in consumer confidence increases the autonomous consumption while a decrease in consumer confidence decreases consumer spending.

Explain why the marginal propensity to consume and the marginal propensity to save must sum to one.

As the economy expands, unemployment rises, and the result is an increase in unemployment benefits.

-Refer to Table 11.6. The equilibrium level of income is:

The government spending multiplier is positive because _______ in government spending cause _______ in GDP.

In our most basic model of the economy, the only expenditures made are:

The formula for the tax multiplier is:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

The government spending multiplier is positive because _ in government spending cause _ in GDP.