Question 1

An increase in the interest rate will stimulate firms' investment spending.

Accepted Answer

A) True 
 B)False

Question 2

If your disposable personal income increases from $40,000 to $48,000 and your consumption increases from $35,000 to $39,000, your marginal propensity to consume (MPC)is:

Accepted Answer

A) 0.20. 
B) 0.40. 
C) 0.50. 
D) 0.80. 
E) 1.00. 
A) 0.20. 
B) 0.40. 
C) 0.50. 
D) 0.80. 
E) 1.00.

Question 3

The marginal propensity to consume is defined as the:

Accepted Answer

A) fraction of total income not spent on consumption. 
B) proportion of any change in income that is spent on consumption. 
C) fraction of total income spent on consumption. 
D) fraction of a change in income that is saved. 
A) fraction of total income not spent on consumption. 
B) proportion of any change in income that is spent on consumption. 
C) fraction of total income spent on consumption. 
D) fraction of a change in income that is saved.

Question 4

In the Keynesian aggregate consumption-income graph, the vertical distance between the consumption function and the 45-degree line shows the:

Accepted Answer

A) amount of savings (or dissavings)at that level of disposable income. 
B) amount of disposable income at that level of consumption. 
C) increase in planned business investment at each level of inflation. 
D) increase in income that causes each change in real GDP. 
A) amount of savings (or dissavings)at that level of disposable income. 
B) amount of disposable income at that level of consumption. 
C) increase in planned business investment at each level of inflation. 
D) increase in income that causes each change in real GDP.

Question 5

Classical economists believed that:

Accepted Answer

A) price flexibility automatically directs market economies to full employment. 
B) budget deficits and surpluses were necessary for the control of economic fluctuations. 
C) market economies suffer prolonged periods of recessions and depressions. 
D) market economies are inherently unstable because of fluctuating aggregate demand. 
A) price flexibility automatically directs market economies to full employment. 
B) budget deficits and surpluses were necessary for the control of economic fluctuations. 
C) market economies suffer prolonged periods of recessions and depressions. 
D) market economies are inherently unstable because of fluctuating aggregate demand.

Question 6

The dominant school of economic thought until midway through the Great Depression of the 1930s was:

Accepted Answer

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

Question 7

Exhibit 8-1 Disposable income and consumption data   In Exhibit 8-1, when disposable income (Y)is increased from $0 to $1,000 to $2,000, the marginal propensity to consume:

Accepted Answer

A) is 1. 
B) decreases from 0.9 to 0.8. 
C) decreases from 0.8 to 0.7. 
D) increases from 0.8 to 0.9. 
E) is negative. 
A) is 1. 
B) decreases from 0.9 to 0.8. 
C) decreases from 0.8 to 0.7. 
D) increases from 0.8 to 0.9. 
E) is negative.

Question 8

As shown in Exhibit 8-2, the 45 S1U1P10S1S1P0line represents:

Accepted Answer

A) autonomous consumption. 
B) real consumption spending. 
C) real disposable income. 
D) all points where real consumption equals real disposable income. 
A) autonomous consumption. 
B) real consumption spending. 
C) real disposable income. 
D) all points where real consumption equals real disposable income.

Question 9

If there are strong expectations of future economic growth, 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 downward. 
D) consumption function will shift upward. 
E) investment demand curve will shift upward. 
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 downward. 
D) consumption function will shift upward. 
E) investment demand curve will shift upward.

Question 10

Exhibit 8-5 Consumption function   As shown in Exhibit 8-5, the marginal propensity to save (MPS)is:

Accepted Answer

A) 0.25. 
B) 0.50. 
C) 0.75. 
D) 0.90. 
A) 0.25. 
B) 0.50. 
C) 0.75. 
D) 0.90.

Question 11

If autonomous consumption is greater than zero and the marginal propensity to consume is greater than zero, but less than one, the consumption function will first be below and then above the 45 degree line.

Accepted Answer

A) True 
 B)False

Question 12

A shift in the consumption function:

Accepted Answer

A) is based on the marginal propensity to consume. 
B) can be caused by a change in the price level. 
C) can be caused by a change in GDP. 
D) None of these. 
A) is based on the marginal propensity to consume. 
B) can be caused by a change in the price level. 
C) can be caused by a change in GDP. 
D) None of these.

Question 13

In the Keynesian model, investment spending is an autonomous expenditure.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 8-8 Aggregate expenditures function   In Exhibit 8-8, what is the households' marginal propensity to consume (MPC)?

Accepted Answer

A) 0.5. 
B) 0.75. 
C) 0.8. 
D) 1. 
A) 0.5. 
B) 0.75. 
C) 0.8. 
D) 1.

Question 15

An increase in the price level, other things remaining the same, may be expected to result in ____ the consumption function.

Accepted Answer

A) a downward shift of 
B) a movement along 
C) an upward shift in 
D) no effect on 
A) a downward shift of 
B) a movement along 
C) an upward shift in 
D) no effect on

Question 16

Economists refer to the simple relationship between consumption and disposable income as:

Accepted Answer

A) autonomous consumption. 
B) the marginal propensity to consume. 
C) the absolute disposable income hypothesis. 
D) disposable income. 
E) the consumption function. 
A) autonomous consumption. 
B) the marginal propensity to consume. 
C) the absolute disposable income hypothesis. 
D) disposable income. 
E) the consumption function.

Question 17

The change in saving divided by the change in disposable income is the:

Accepted Answer

A) propensity to save. 
B) saving function. 
C) average propensity to save. 
D) extra propensity to save. 
E) marginal propensity to save. 
A) propensity to save. 
B) saving function. 
C) average propensity to save. 
D) extra propensity to save. 
E) marginal propensity to save.

Question 18

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

Accepted Answer

A) An increase in disposable income. 
B) A decrease in disposable income. 
C) Legislation making credit harder to obtain. 
D) Lower tax rates. 
E) A technological breakthrough. 
A) An increase in disposable income. 
B) A decrease in disposable income. 
C) Legislation making credit harder to obtain. 
D) Lower tax rates. 
E) A technological breakthrough.

Question 19

According to the classical economists, which of the following would make prolonged unemployment impossible?

Accepted Answer

A) Flexible prices, wages, and interest rates. 
B) Activist government policies. 
C) Stable investment demand. 
D) A steadily growing money supply. 
A) Flexible prices, wages, and interest rates. 
B) Activist government policies. 
C) Stable investment demand. 
D) A steadily growing money supply.

Question 20

Which of the following will shift the consumption function upward?

Accepted Answer

A) An increase in consumer wealth. 
B) An increase in the interest rate. 
C) An increase in personal income taxes. 
D) A decrease in the MPC. 
E) An increase in disposable income. 
A) An increase in consumer wealth. 
B) An increase in the interest rate. 
C) An increase in personal income taxes. 
D) A decrease in the MPC. 
E) An increase in disposable income.

Exam 8: The Keynesian Model

An increase in the interest rate will stimulate firms' investment spending.

If your disposable personal income increases from $40,000 to $48,000 and your consumption increases from $35,000 to $39,000, your marginal propensity to consume (MPC)is:

The marginal propensity to consume is defined as the:

In the Keynesian aggregate consumption-income graph, the vertical distance between the consumption function and the 45-degree line shows the:

Classical economists believed that:

The dominant school of economic thought until midway through the Great Depression of the 1930s was:

Exhibit 8-1 Disposable income and consumption data In Exhibit 8-1, when disposable income (Y)is increased from $0 to $1,000 to $2,000, the marginal propensity to consume:

As shown in Exhibit 8-2, the 45 0line represents:

If there are strong expectations of future economic growth, then the:

Exhibit 8-5 Consumption function As shown in Exhibit 8-5, the marginal propensity to save (MPS)is:

If autonomous consumption is greater than zero and the marginal propensity to consume is greater than zero, but less than one, the consumption function will first be below and then above the 45 degree line.

A shift in the consumption function:

In the Keynesian model, investment spending is an autonomous expenditure.

Exhibit 8-8 Aggregate expenditures function In Exhibit 8-8, what is the households' marginal propensity to consume (MPC)?

An increase in the price level, other things remaining the same, may be expected to result in ____ the consumption function.

Economists refer to the simple relationship between consumption and disposable income as:

The change in saving divided by the change in disposable income is the:

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

According to the classical economists, which of the following would make prolonged unemployment impossible?

Which of the following will shift the consumption function upward?

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

As shown in Exhibit 8-2, the 45 ⁰line represents: