Question 1

If the economy is experiencing less than full-employment, the Keynesian school recommends that the government:

Accepted Answer

A) do nothing to stimulate the economy. 
B) undertake fiscal policy to stimulate aggregate demand. 
C) undertake fiscal policy to stimulate aggregate supply. 
D) balance the budget to stimulate aggregate demand. 
A) do nothing to stimulate the economy. 
B) undertake fiscal policy to stimulate aggregate demand. 
C) undertake fiscal policy to stimulate aggregate supply. 
D) balance the budget to stimulate aggregate demand.

Question 2

Which of the following statements is true about Say's law?

Accepted Answer

A) It states that supply creates its own demand. 
B) It states that demand creates its own supply. 
C) It states that total output will always exceed total spending. 
D) It states that consumption spending is the most volatile component of aggregate expenditures. 
E) It is a major proposition of the Keynesian model. 
A) It states that supply creates its own demand. 
B) It states that demand creates its own supply. 
C) It states that total output will always exceed total spending. 
D) It states that consumption spending is the most volatile component of aggregate expenditures. 
E) It is a major proposition of the Keynesian model.

Question 3

The dominant school of thought prior to the 1930s was known as the:

Accepted Answer

A) Keynesian school. 
B) classical school. 
C) rational expectations school. 
D) supply-side school. 
E) monetarist school. 
A) Keynesian school. 
B) classical school. 
C) rational expectations school. 
D) supply-side school. 
E) monetarist school.

Question 4

A downward movement along 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 5

In the aggregate expenditures model, equilibrium occurs if:

Accepted Answer

A) consumption equals investment. 
B) inventory equals investment. 
C) aggregate expenditures equal consumption. 
D) aggregate expenditures equal disposable income. 
A) consumption equals investment. 
B) inventory equals investment. 
C) aggregate expenditures equal consumption. 
D) aggregate expenditures equal disposable income.

Question 6

What is the title of the John Maynard Keynes's book published in 1936 that challenged the classical self-correction economic theory?

Accepted Answer

A) In the Long-run We Are Dead . 
B) Classical Economics Revised . 
C) General Theory of Employment, Interest, and Money . 
D) A Keynesian Approach to Economic Policy . 
A) In the Long-run We Are Dead . 
B) Classical Economics Revised . 
C) General Theory of Employment, Interest, and Money . 
D) A Keynesian Approach to Economic Policy .

Question 7

If people's real assets increase, then the:

Accepted Answer

A) economy will move to the right along the existing consumption function. 
B) economy will move to the left along the existing consumption function. 
C) consumption function will shift down. 
D) consumption function will shift up. 
E) investment demand curve will shift up. 
A) economy will move to the right along the existing consumption function. 
B) economy will move to the left along the existing consumption function. 
C) consumption function will shift down. 
D) consumption function will shift up. 
E) investment demand curve will shift up.

Question 8

The aggregate expenditures function (AE)is the total spending in an economy at a given:

Accepted Answer

A) rate of interest. 
B) level of disposable income. 
C) level of autonomous investment. 
D) price level. 
A) rate of interest. 
B) level of disposable income. 
C) level of autonomous investment. 
D) price level.

Question 9

\What are the marginal propensity to consume (MPC)and the marginal propensity to save (MPS)? How is the MPC related to the consumption function?

Accepted Answer

The marginal propensity to consume is th

Question 10

If people become pessimistic about the state of the economy, the consumption function shifts downward.

Accepted Answer

A) True 
 B)False

Question 11

Keynesians:

Accepted Answer

A) accept the countercyclical policy of doing nothing, that is, allowing market forces to work. 
B) believe that the level of aggregate demand in the 1930s was sufficient to generate full employment. 
C) accept the fact that policymakers should eliminate inflation first before focusing on unemployment. 
D) focus on increasing aggregate demand in order to stimulate the economy. 
E) were prepared for the events that beset our economy in the 1970s and 1980s. 
A) accept the countercyclical policy of doing nothing, that is, allowing market forces to work. 
B) believe that the level of aggregate demand in the 1930s was sufficient to generate full employment. 
C) accept the fact that policymakers should eliminate inflation first before focusing on unemployment. 
D) focus on increasing aggregate demand in order to stimulate the economy. 
E) were prepared for the events that beset our economy in the 1970s and 1980s.

Question 12

Which of the following would cause a rightward shift in the investment demand curve?

Accepted Answer

A) An increase in the interest rate. 
B) An increase in the rate of capacity utilization. 
C) An increase in households' disposable income; 
D) An increase in business taxes. 
A) An increase in the interest rate. 
B) An increase in the rate of capacity utilization. 
C) An increase in households' disposable income; 
D) An increase in business taxes.

Question 13

The change in consumption divided by a change in disposable income is called the:

Accepted Answer

A) consumption function. 
B) marginal propensity to consume. 
C) marginal propensity to spend. 
D) spending function. 
E) changing propensity to consume. 
A) consumption function. 
B) marginal propensity to consume. 
C) marginal propensity to spend. 
D) spending function. 
E) changing propensity to consume.

Question 14

If Y = $500 billion, autonomous consumption = $300 billion, and the marginal propensity to save = 0.20, then saving will equal:

Accepted Answer

A) - $200 billion. 
B) $200 billion. 
C) - $100 billion. 
D) $100 billion. 
E) $40 billion. 
A) - $200 billion. 
B) $200 billion. 
C) - $100 billion. 
D) $100 billion. 
E) $40 billion.

Question 15

Exhibit 8-2 Consumption function   As shown in Exhibit 8-2, autonomous consumption is:

Accepted Answer

A) 0. 
B) $2 trillion. 
C) $4 trillion. 
D) $6 trillion. 
E) $8 trillion. 
A) 0. 
B) $2 trillion. 
C) $4 trillion. 
D) $6 trillion. 
E) $8 trillion.

Question 16

If Y = $100 billion, then C = $50 billion, and I = $60 billion. What will autonomous investment be when Y = $200 billion and C = $100 billion?

Accepted Answer

A) $50 billion 
B) $60 billion 
C) $100 billion 
D) $120 billion 
E) $200 billion 
A) $50 billion 
B) $60 billion 
C) $100 billion 
D) $120 billion 
E) $200 billion

Question 17

Exhibit 8-12 Consumption function   In Exhibit 8-12, which of the following could cause the movement from C1 to C2?

Accepted Answer

A) A decrease in real asset holdings. 
B) Lower interest rates. 
C) Expectations that the economy will grow. 
D) Expectations of lower future prices. 
E) Lower money holdings. 
A) A decrease in real asset holdings. 
B) Lower interest rates. 
C) Expectations that the economy will grow. 
D) Expectations of lower future prices. 
E) Lower money holdings.

Question 18

A shift in the investment demand curve can be caused by a change in the expectations of profits by businessmen.

Accepted Answer

A) True 
 B)False

Question 19

A movement along the consumption function is caused by a change in:

Accepted Answer

A) consumption. 
B) expectations. 
C) aggregate supply. 
D) disposable income. 
A) consumption. 
B) expectations. 
C) aggregate supply. 
D) disposable income.

Question 20

The demand curve for investment in the economy as a function of interest rates is:

Accepted Answer

A) vertical. 
B) horizontal. 
C) upward sloping. 
D) downward sloping. 
E) elliptical. 
A) vertical. 
B) horizontal. 
C) upward sloping. 
D) downward sloping. 
E) elliptical.

Exam 8: The Keynesian Model

If the economy is experiencing less than full-employment, the Keynesian school recommends that the government:

Which of the following statements is true about Say's law?

The dominant school of thought prior to the 1930s was known as the:

A downward movement along the investment demand curve would be caused by a(n):

In the aggregate expenditures model, equilibrium occurs if:

What is the title of the John Maynard Keynes's book published in 1936 that challenged the classical self-correction economic theory?

If people's real assets increase, then the:

The aggregate expenditures function (AE)is the total spending in an economy at a given:

\What are the marginal propensity to consume (MPC)and the marginal propensity to save (MPS)? How is the MPC related to the consumption function?

If people become pessimistic about the state of the economy, the consumption function shifts downward.

Keynesians:

Which of the following would cause a rightward shift in the investment demand curve?

The change in consumption divided by a change in disposable income is called the:

If Y = $500 billion, autonomous consumption = $300 billion, and the marginal propensity to save = 0.20, then saving will equal:

Exhibit 8-2 Consumption function As shown in Exhibit 8-2, autonomous consumption is:

If Y = $100 billion, then C = $50 billion, and I = $60 billion. What will autonomous investment be when Y = $200 billion and C = $100 billion?

Exhibit 8-12 Consumption function In Exhibit 8-12, which of the following could cause the movement from C1 to C2?

A shift in the investment demand curve can be caused by a change in the expectations of profits by businessmen.

A movement along the consumption function is caused by a change in:

The demand curve for investment in the economy as a function of interest rates 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

Exhibit 8-12 Consumption function In Exhibit 8-12, which of the following could cause the movement from C₁ to C₂?