Question 1

Keynesian economics:

Accepted Answer

A) affirms the classical economists' basic premise concerning competitive markets. 
B) believes that monopolies and unions tend to be permanent fixtures in our economy and the prices they create tend to be flexible, at least downwardly. 
C) emphasizes the possibility that an economy can never be in equilibrium at less than full employment. 
D) prefers to emphasize aggregate supply over aggregate demand. 
E) believes that unemployment results when aggregate demand is insufficient to reach a full-employment level of real GDP. 
A) affirms the classical economists' basic premise concerning competitive markets. 
B) believes that monopolies and unions tend to be permanent fixtures in our economy and the prices they create tend to be flexible, at least downwardly. 
C) emphasizes the possibility that an economy can never be in equilibrium at less than full employment. 
D) prefers to emphasize aggregate supply over aggregate demand. 
E) believes that unemployment results when aggregate demand is insufficient to reach a full-employment level of real GDP.

Question 2

Saving is disposable personal income spent on investment.

Accepted Answer

A) True 
 B)False

Question 3

The hands-off view of the classical school rests on which of the following two simple propositions about markets?

Accepted Answer

A) Demand creates its own supply and markets are basically competitive. 
B) Industrial policy is inevitable and all prices are flexible. 
C) Market failure occurs and prices are rigid. 
D) Wages are sticky downward and market failure is inevitable. 
E) Markets are basically competitive and prices are flexible. 
A) Demand creates its own supply and markets are basically competitive. 
B) Industrial policy is inevitable and all prices are flexible. 
C) Market failure occurs and prices are rigid. 
D) Wages are sticky downward and market failure is inevitable. 
E) Markets are basically competitive and prices are flexible.

Question 4

Given the consumption function C = $500 billion + 0.80Y, an increase in disposable income from $6,000 billion to $7,000 billion will cause consumption to increase by:

Accepted Answer

A) $800 billion. 
B) $1,000 billion. 
C) $1,300 billion. 
D) $1,500 billion. 
E) $1,800 billion. 
A) $800 billion. 
B) $1,000 billion. 
C) $1,300 billion. 
D) $1,500 billion. 
E) $1,800 billion.

Question 5

Given the consumption function C = $100 billion + 0.75 ($300 billion), autonomous consumption is equal to:

Accepted Answer

A) $100 billion. 
B) $225 billion. 
C) $300 billion. 
D) $325 billion. 
E) $400 billion. 
A) $100 billion. 
B) $225 billion. 
C) $300 billion. 
D) $325 billion. 
E) $400 billion.

Question 6

If people expect prices to fall in the future,

Accepted Answer

A) their consumption function in the present will shift downward. 
B) their consumption function in the present will shift upward. 
C) their consumption function in the present will be unchanged. 
D) they will increase their current levels of consumption by moving up along their consumption functions. 
E) they will decrease their current levels of consumption by moving down along their consumption functions. 
A) their consumption function in the present will shift downward. 
B) their consumption function in the present will shift upward. 
C) their consumption function in the present will be unchanged. 
D) they will increase their current levels of consumption by moving up along their consumption functions. 
E) they will decrease their current levels of consumption by moving down along their consumption functions.

Question 7

If income increases from $110,000 to $120,000 and consumption from $108,000 to $114,000, the marginal propensity to consume is:

Accepted Answer

A) 0.40. 
B) 0.60. 
C) 0.94. 
D) 1.60. 
A) 0.40. 
B) 0.60. 
C) 0.94. 
D) 1.60.

Question 8

Consider the Keynesian consumption function. If disposable income is greater than the break-even level of disposable income, then households will be:

Accepted Answer

A) investing. 
B) borrowing. 
C) dissaving. 
D) saving. 
A) investing. 
B) borrowing. 
C) dissaving. 
D) saving.

Question 9

The investment demand curve as a function of various possible interest rates for the entire economy is assumed to be:

Accepted Answer

A) positively sloped. 
B) negatively sloped. 
C) rising, then falling. 
D) falling, then rising. 
A) positively sloped. 
B) negatively sloped. 
C) rising, then falling. 
D) falling, then rising.

Question 10

Saving is disposable personal income not spent on consumption.

Accepted Answer

A) True 
 B)False

Question 11

The marginal propensity to consume (MPC)is the change in consumption divided by the change in disposable personal income.

Accepted Answer

A) True 
 B)False

Question 12

A primary emphasis of the Keynesian school is the economy:

Accepted Answer

A) has a tendency to always create a full-employment level of output. 
B) has a tendency to always create inflationary pressure at all levels of output. 
C) has a tendency to eliminate unemployment by lowering wage rates to create an equilibrium in the labor market. 
D) is driven by the supply-side of the market. 
E) has a tendency to be in equilibrium at less than full employment. 
A) has a tendency to always create a full-employment level of output. 
B) has a tendency to always create inflationary pressure at all levels of output. 
C) has a tendency to eliminate unemployment by lowering wage rates to create an equilibrium in the labor market. 
D) is driven by the supply-side of the market. 
E) has a tendency to be in equilibrium at less than full employment.

Question 13

The marginal propensity to consume (MPC)is computed as the change in:

Accepted Answer

A) consumption divided by the change in savings. 
B) consumption divided by the change in disposable personal income. 
C) consumption divided by the change in GDP. 
D) None of these. 
A) consumption divided by the change in savings. 
B) consumption divided by the change in disposable personal income. 
C) consumption divided by the change in GDP. 
D) None of these.

Question 14

An increase in the rate of interest, other things being equal, will cause a(n):

Accepted Answer

A) downward shift in the investment demand curve. 
B) movement downward along the investment demand curve. 
C) movement upward along the investment demand curve. 
D) upward shift in the investment demand curve. 
A) downward shift in the investment demand curve. 
B) movement downward along the investment demand curve. 
C) movement upward along the investment demand curve. 
D) upward shift in the investment demand curve.

Question 15

If the interest rate increases, then the:

Accepted Answer

A) economy will move to a new point along the existing consumption function. 
B) consumption function will shift upward. 
C) investment demand curve will shift downward. 
D) investment demand curve will shift upward. 
E) economy will move to a new point along the existing investment demand curve. 
A) economy will move to a new point along the existing consumption function. 
B) consumption function will shift upward. 
C) investment demand curve will shift downward. 
D) investment demand curve will shift upward. 
E) economy will move to a new point along the existing investment demand curve.

Question 16

Which one of the following will shift the consumption function upward?

Accepted Answer

A) Higher interest rates. 
B) Expectations that the economy will grow in the future. 
C) A decrease in money holdings. 
D) Higher capacity utilization rates. 
E) A tax increase. 
A) Higher interest rates. 
B) Expectations that the economy will grow in the future. 
C) A decrease in money holdings. 
D) Higher capacity utilization rates. 
E) A tax increase.

Question 17

As shown in Exhibit 8-3, break-even income occurs:

Accepted Answer

A) at 0. 
B) between 0 and $5 trillion. 
C) where real disposable income is greater than $5 trillion. 
D) at $4 trillion. 
E) At $5trillion. 
A) at 0. 
B) between 0 and $5 trillion. 
C) where real disposable income is greater than $5 trillion. 
D) at $4 trillion. 
E) At $5trillion.

Question 18

The marginal propensity to save (MPS)is computed as the change in:

Accepted Answer

A) savings divided by the change in saving. 
B) savings divided by the change in disposable personal income. 
C) saving divided by the change in GDP. 
D) None of these. 
A) savings divided by the change in saving. 
B) savings divided by the change in disposable personal income. 
C) saving divided by the change in GDP. 
D) None of these.

Question 19

The Keynesian view stresses that:

Accepted Answer

A) demand creates its own demand. 
B) there is direct relationship between consumer spending and disposable income. 
C) when aggregate expenditures (demand)can be forever less than full-employment output therefore prolonged unemployment will persist. 
D) all of these are true. 
A) demand creates its own demand. 
B) there is direct relationship between consumer spending and disposable income. 
C) when aggregate expenditures (demand)can be forever less than full-employment output therefore prolonged unemployment will persist. 
D) all of these are true.

Question 20

According to Say's law, there cannot be overproduction of goods and services because:

Accepted Answer

A) planned aggregate expenditures sometimes fall short of total output. 
B) prices and wages are "sticky" or inflexible in the downward direction. 
C) demand creates its own supply. 
D) supply creates its own demand. 
A) planned aggregate expenditures sometimes fall short of total output. 
B) prices and wages are "sticky" or inflexible in the downward direction. 
C) demand creates its own supply. 
D) supply creates its own demand.

Exam 8: The Keynesian Model

Keynesian economics:

Saving is disposable personal income spent on investment.

The hands-off view of the classical school rests on which of the following two simple propositions about markets?

Given the consumption function C = $500 billion + 0.80Y, an increase in disposable income from $6,000 billion to $7,000 billion will cause consumption to increase by:

Given the consumption function C = $100 billion + 0.75 ($300 billion), autonomous consumption is equal to:

If people expect prices to fall in the future,

If income increases from $110,000 to $120,000 and consumption from $108,000 to $114,000, the marginal propensity to consume is:

Consider the Keynesian consumption function. If disposable income is greater than the break-even level of disposable income, then households will be:

The investment demand curve as a function of various possible interest rates for the entire economy is assumed to be:

Saving is disposable personal income not spent on consumption.

The marginal propensity to consume (MPC)is the change in consumption divided by the change in disposable personal income.

A primary emphasis of the Keynesian school is the economy:

The marginal propensity to consume (MPC)is computed as the change in:

An increase in the rate of interest, other things being equal, will cause a(n):

If the interest rate increases, then the:

Which one of the following will shift the consumption function upward?

As shown in Exhibit 8-3, break-even income occurs:

The marginal propensity to save (MPS)is computed as the change in:

The Keynesian view stresses that:

According to Say's law, there cannot be overproduction of goods and services because:

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