Question 1

Exhibit 8-11 Consumption function   In Exhibit 8-11, the level of autonomous consumption for C' is:

Accepted Answer

A) $50. 
B) $100. 
C) $150. 
D) $200. 
E) $0. 
A) $50. 
B) $100. 
C) $150. 
D) $200. 
E) $0. C

Question 2

Exhibit 8-6 Aggregate expenditures function   As shown in Exhibit 8-6, autonomous consumption is:

Accepted Answer

A) 0. 
B) $1 trillion. 
C) $2 trillion. 
D) $3 trillion. 
E) $6 trillion. 
A) 0. 
B) $1 trillion. 
C) $2 trillion. 
D) $3 trillion. 
E) $6 trillion. C

Question 3

Exhibit 8-6 Aggregate expenditures function   As shown in Exhibit 8-6, the marginal propensity to consume (MPC)is:

Accepted Answer

A) 0.33. 
B) 0.50. 
C) 0.67. 
D) 0.75. 
A) 0.33. 
B) 0.50. 
C) 0.67. 
D) 0.75. B

Question 4

Keynes argued that the economy naturally achieves full employment because supply creates its own demand.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 8-4 Disposable income and consumption data      
Note: All amounts are in billions of dollars per year. As shown in Exhibit 8-4 , if disposable income is $500 billion, the marginal propensity to save (MPS)is:

Accepted Answer

A) 0.00. 
B) 0.25. 
C) 0.75. 
D) 1.00. 
A) 0.00. 
B) 0.25. 
C) 0.75. 
D) 1.00.

Question 6

A rightward shift of the investment demand curve would be caused by a(n):

Accepted Answer

A) increase in the expected rate of return on investment caused by an increase in business confidence. 
B) decrease in the expected rate of return on investment caused by a decrease in business confidence. 
C) increase in the rate of interest. 
D) decrease in the rate of interest. 
A) increase in the expected rate of return on investment caused by an increase in business confidence. 
B) decrease in the expected rate of return on investment caused by a decrease in business confidence. 
C) increase in the rate of interest. 
D) decrease in the rate of interest.

Question 7

An increase in consumer wealth shifts the consumption function upward.

Accepted Answer

A) True 
 B)False

Question 8

At the point where the consumption function crosses the 45-degree line:

Accepted Answer

A) consumption is equal to disposable income, and therefore, saving is zero. 
B) consumption is less than income, and saving is present. 
C) consumption is greater than income, and dissaving is present. 
D) planned saving equals actual saving minus disposable income. 
A) consumption is equal to disposable income, and therefore, saving is zero. 
B) consumption is less than income, and saving is present. 
C) consumption is greater than income, and dissaving is present. 
D) planned saving equals actual saving minus disposable income.

Question 9

The fraction of each added dollar of disposable income that is used for consumption is called the:

Accepted Answer

A) average propensity to consumer (AP
C) . 
B) autonomous consumption rate (ACR). 
C) marginal consumption propensity (MCP). 
D) marginal propensity to consume (MP
C) . 
A) average propensity to consumer (AP
C) . 
B) autonomous consumption rate (ACR). 
C) marginal consumption propensity (MCP). 
D) marginal propensity to consume (MP
C) .

Question 10

In the simple Keynesian Cross model, the equilibrium level of real disposable income is determined by:

Accepted Answer

A) the real interest rate. 
B) prices. 
C) aggregate expenditures. 
D) aggregate supply. 
A) the real interest rate. 
B) prices. 
C) aggregate expenditures. 
D) aggregate supply.

Question 11

The marginal propensity to save is:

Accepted Answer

A) the change in saving induced by a change in consumption. 
B) (change in S)\ (change in Y). 
C) 1 - MPC \ MPC. 
D) (change in Y - bY)\ (change in Y). 
E) 1 - MPC. 
A) the change in saving induced by a change in consumption. 
B) (change in S)\ (change in Y). 
C) 1 - MPC \ MPC. 
D) (change in Y - bY)\ (change in Y). 
E) 1 - MPC.

Question 12

Exhibit 8-6 Aggregate expenditures function   As shown in Exhibit 8-6, this economy is in macro equilibrium at:

Accepted Answer

A) $2 trillion. 
B) $4 trillion. 
C) $6 trillion. 
D) $8 trillion. 
A) $2 trillion. 
B) $4 trillion. 
C) $6 trillion. 
D) $8 trillion.

Question 13

The sum of the marginal propensity to consume (MPC)and the marginal propensity to save (MPS)always equals:

Accepted Answer

A) 1. 
B) 0. 
C) the interest rate. 
D) the marginal propensity to invest (MPI). 
A) 1. 
B) 0. 
C) the interest rate. 
D) the marginal propensity to invest (MPI).

Question 14

Exhibit 8-10 Consumption function   In Exhibit 8-10, the level of autonomous consumption is:

Accepted Answer

A) 0. 
B) $25. 
C) $50. 
D) $75. 
E) $100. 
A) 0. 
B) $25. 
C) $50. 
D) $75. 
E) $100.

Question 15

Real investment spending for the past 35 years is less volatile than real personal consumption.

Accepted Answer

A) True 
 B)False

Question 16

The consumption function has a positive slope.

Accepted Answer

A) True 
 B)False

Question 17

If consumption is $800 when disposable income is $1,000, the marginal propensity to consume (MPC)must be 0.80.

Accepted Answer

A) True 
 B)False

Question 18

A lower interest rate makes more investment projects profitable, meaning that:

Accepted Answer

A) there is a direct relationship between the rate of interest and the quantity of investment spending. 
B) there is an inverse relationship between the rate of interest and the quantity of investment spending. 
C) there is no relationship between the rate of interest and the quantity of investment spending. 
D) the demand curve for investment spending is horizontal. 
E) the demand curve for investment spending is vertical. 
A) there is a direct relationship between the rate of interest and the quantity of investment spending. 
B) there is an inverse relationship between the rate of interest and the quantity of investment spending. 
C) there is no relationship between the rate of interest and the quantity of investment spending. 
D) the demand curve for investment spending is horizontal. 
E) the demand curve for investment spending is vertical.

Question 19

Describe the relationship between investment and the level of disposable income.

Accepted Answer

Investment is autonomous with respect to

Question 20

Mathematically, the marginal propensity to consume is:

Accepted Answer

A) consumption divided by income. 
B) the change in consumption divided by the change in income. 
C) income divided by consumption. 
D) the change in income divided by the change in consumption. 
A) consumption divided by income. 
B) the change in consumption divided by the change in income. 
C) income divided by consumption. 
D) the change in income divided by the change in consumption.

Exam 8: The Keynesian Model

Exhibit 8-11 Consumption function In Exhibit 8-11, the level of autonomous consumption for C' is:

Exhibit 8-6 Aggregate expenditures function As shown in Exhibit 8-6, autonomous consumption is:

Exhibit 8-6 Aggregate expenditures function As shown in Exhibit 8-6, the marginal propensity to consume (MPC)is:

Keynes argued that the economy naturally achieves full employment because supply creates its own demand.

Exhibit 8-4 Disposable income and consumption data Note: All amounts are in billions of dollars per year. As shown in Exhibit 8-4 , if disposable income is $500 billion, the marginal propensity to save (MPS)is:

A rightward shift of the investment demand curve would be caused by a(n):

An increase in consumer wealth shifts the consumption function upward.

At the point where the consumption function crosses the 45-degree line:

The fraction of each added dollar of disposable income that is used for consumption is called the:

In the simple Keynesian Cross model, the equilibrium level of real disposable income is determined by:

The marginal propensity to save is:

Exhibit 8-6 Aggregate expenditures function As shown in Exhibit 8-6, this economy is in macro equilibrium at:

The sum of the marginal propensity to consume (MPC)and the marginal propensity to save (MPS)always equals:

Exhibit 8-10 Consumption function In Exhibit 8-10, the level of autonomous consumption is:

Real investment spending for the past 35 years is less volatile than real personal consumption.

The consumption function has a positive slope.

If consumption is $800 when disposable income is $1,000, the marginal propensity to consume (MPC)must be 0.80.

A lower interest rate makes more investment projects profitable, meaning that:

Describe the relationship between investment and the level of disposable income.

Mathematically, the marginal propensity to consume is:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters