Question 1

In the view of the classical school, unemployment:

Accepted Answer

A) is a permanent condition. 
B) disappears when everyone who is willing to work at the equilibrium wage finds employment. 
C) exists because people do not interfere with the competitive process. 
D) is only temporary because all wages and prices are rigid. 
E) is necessary and good for the economy. 
A) is a permanent condition. 
B) disappears when everyone who is willing to work at the equilibrium wage finds employment. 
C) exists because people do not interfere with the competitive process. 
D) is only temporary because all wages and prices are rigid. 
E) is necessary and good for the economy.

Question 2

If your disposable personal income increases from $33,000 to $41,000 and your consumption increases from $8,000 to $12,000, your marginal propensity to consume (MPC)is:

Accepted Answer

A) 0.2. 
B) 0.4. 
C) 0.5. 
D) 0.8. 
E) 1.0. 
A) 0.2. 
B) 0.4. 
C) 0.5. 
D) 0.8. 
E) 1.0.

Question 3

As shown in Exhibit 8-3, autonomous consumption is:

Accepted Answer

A) 0. 
B) $1 trillion. 
C) $2 trillion. 
D) $4 trillion. 
E) $6 trillion. 
A) 0. 
B) $1 trillion. 
C) $2 trillion. 
D) $4 trillion. 
E) $6 trillion.

Question 4

Exhibit 8-6 Aggregate expenditures function   As shown in Exhibit 8-6, saving occurs:

Accepted Answer

A) at 0. 
B) between 0 and $4 trillion. 
C) where disposable income is greater than $4 trillion. 
D) at $2 trillion. 
A) at 0. 
B) between 0 and $4 trillion. 
C) where disposable income is greater than $4 trillion. 
D) at $2 trillion.

Question 5

Within the simple Keynesian Cross model, equilibrium takes place:

Accepted Answer

A) at full employment. 
B) when aggregate spending equals real disposable income. 
C) when the money interest rate and real interest rate are equal. 
D) when actual and expected rates of inflation are equal. 
A) at full employment. 
B) when aggregate spending equals real disposable income. 
C) when the money interest rate and real interest rate are equal. 
D) when actual and expected rates of inflation are equal.

Question 6

The consumption function will shift upward if real asset and money holdings:

Accepted Answer

A) increase, if people expect prices to increase, if interest rates decrease, and if taxes decrease. 
B) increase, if people expect prices to increase, if interest rates increase, and if taxes increase. 
C) increase, if people expect prices to increase, if interest rates increase, and if taxes decrease. 
D) decrease, if people expect prices to decrease, if interest rates decrease, and if taxes decrease. 
E) decrease, if people expect prices to increase, if interest rates increase, and if taxes decrease. 
A) increase, if people expect prices to increase, if interest rates decrease, and if taxes decrease. 
B) increase, if people expect prices to increase, if interest rates increase, and if taxes increase. 
C) increase, if people expect prices to increase, if interest rates increase, and if taxes decrease. 
D) decrease, if people expect prices to decrease, if interest rates decrease, and if taxes decrease. 
E) decrease, if people expect prices to increase, if interest rates increase, and if taxes decrease.

Question 7

John Maynard Keynes's central proposition that a dollar increase in disposable income would increase consumption, but by less than the increase in disposable income, means the marginal propensity to consume (MPC)is:

Accepted Answer

A) greater than or equal to one. 
B) equal to one. 
C) less than one, but greater than zero. 
D) negative. 
A) greater than or equal to one. 
B) equal to one. 
C) less than one, but greater than zero. 
D) negative.

Question 8

The French economist Jean-Baptiste Say transformed the equality of total output and total spending into a law that can be expressed as follows:

Accepted Answer

A) Unemployment is not possible in the short run. 
B) Demand and supply are never equal. 
C) Supply creates its own demand. 
D) Demand creates its own supply. 
A) Unemployment is not possible in the short run. 
B) Demand and supply are never equal. 
C) Supply creates its own demand. 
D) Demand creates its own supply.

Question 9

Which of the following would cause the investment demand curve to shift?

Accepted Answer

A) Animal spirits (expectations). 
B) Technological change. 
C) Change in business taxes. 
D) All of these. 
A) Animal spirits (expectations). 
B) Technological change. 
C) Change in business taxes. 
D) All of these.

Question 10

Which of the following would shift the investment demand curve rightward?

Accepted Answer

A) Firms are operating their plants at less than full capacity. 
B) A decrease in the interest rate. 
C) A decrease in business taxes. 
D) All of the above. 
E) None of the above. 
A) Firms are operating their plants at less than full capacity. 
B) A decrease in the interest rate. 
C) A decrease in business taxes. 
D) All of the above. 
E) None of the above.

Question 11

Keynes once remarked that, in the long run, we're all dead. He was responding to the conventional wisdom of classical economics who argued that:

Accepted Answer

A) the supply curve should remain vertical in the long run. 
B) World War I was fought to free Britain from economic ruin. 
C) depression was only a short-run, temporary departure from full-employment equilibrium. 
D) funeral plots need to be determined by the market. 
E) market-based realities cause the estate tax to be too high. 
A) the supply curve should remain vertical in the long run. 
B) World War I was fought to free Britain from economic ruin. 
C) depression was only a short-run, temporary departure from full-employment equilibrium. 
D) funeral plots need to be determined by the market. 
E) market-based realities cause the estate tax to be too high.

Question 12

Exhibit 8-7 Aggregate expenditures function   As shown in Exhibit 8-7, 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.

Question 13

The consumption function will shift for all of the following reasons except:

Accepted Answer

A) a change in a household's real assets. 
B) a change in interest rates. 
C) expectations of price changes. 
D) changes in a household's disposable incomes. 
E) changes in taxation policy. 
A) a change in a household's real assets. 
B) a change in interest rates. 
C) expectations of price changes. 
D) changes in a household's disposable incomes. 
E) changes in taxation policy.

Question 14

A rightward shift of the investment demand curve could be caused by:

Accepted Answer

A) a technological advance. 
B) optimism about long-term growth. 
C) forecasts of favorable business conditions. 
D) an increase in confidence in short-run economic conditions. 
E) any of these. 
A) a technological advance. 
B) optimism about long-term growth. 
C) forecasts of favorable business conditions. 
D) an increase in confidence in short-run economic conditions. 
E) any of these.

Question 15

Exhibit 8-9 Aggregate expenditures function   In Exhibit 8-9, aggregate income will equal consumption plus investment and the economy will be in equilibrium when real disposable income is:

Accepted Answer

A) $2.33 trillion. 
B) $3 trillion. 
C) $7 trillion. 
D) $10 trillion. 
A) $2.33 trillion. 
B) $3 trillion. 
C) $7 trillion. 
D) $10 trillion.

Question 16

The consumption function has a slope less than one because:

Accepted Answer

A) as disposable income increases, the real rate of interest will decline. 
B) saving and consumption are equal at all levels of income. 
C) as disposable income increases, consumption expenditures increase by an amount less than the increase in income. 
D) as disposable income increases, consumption expenditures increase by an amount greater than the increase in income. 
A) as disposable income increases, the real rate of interest will decline. 
B) saving and consumption are equal at all levels of income. 
C) as disposable income increases, consumption expenditures increase by an amount less than the increase in income. 
D) as disposable income increases, consumption expenditures increase by an amount greater than the increase in income.

Question 17

The consumption function is drawn on a graph with disposable income on the horizontal axis without including investment. Assume investment is autonomous and is added to the consumption function. The effect is:

Accepted Answer

A) an upward adjustment in the vertical intercept. 
B) no change in the adjustment in the vertical intercept. 
C) an increase in the slope of the consumption schedule. 
D) a decrease in the slope of the planned expenditure schedule. 
A) an upward adjustment in the vertical intercept. 
B) no change in the adjustment in the vertical intercept. 
C) an increase in the slope of the consumption schedule. 
D) a decrease in the slope of the planned expenditure schedule.

Question 18

The relationship between aggregate expenditures and disposable income is shown by the:

Accepted Answer

A) aggregate expenditures curve. 
B) consumption function. 
C) investment curve. 
D) saving-disposable personal income curve. 
A) aggregate expenditures curve. 
B) consumption function. 
C) investment curve. 
D) saving-disposable personal income curve.

Question 19

The sum of consumption and investment is:

Accepted Answer

A) total production. 
B) aggregate supply. 
C) aggregate disposable demand. 
D) aggregate expenditures. 
A) total production. 
B) aggregate supply. 
C) aggregate disposable demand. 
D) aggregate expenditures.

Question 20

Which of the following will shift the consumption function upward?

Accepted Answer

A) A tax increase. 
B) Higher capacity utilization rates. 
C) Higher disposable income. 
D) Lower wealth holdings. 
E) Expectations of inflation. 
A) A tax increase. 
B) Higher capacity utilization rates. 
C) Higher disposable income. 
D) Lower wealth holdings. 
E) Expectations of inflation.

Exam 8: The Keynesian Model

In the view of the classical school, unemployment:

If your disposable personal income increases from $33,000 to $41,000 and your consumption increases from $8,000 to $12,000, your marginal propensity to consume (MPC)is:

As shown in Exhibit 8-3, autonomous consumption is:

Exhibit 8-6 Aggregate expenditures function As shown in Exhibit 8-6, saving occurs:

Within the simple Keynesian Cross model, equilibrium takes place:

The consumption function will shift upward if real asset and money holdings:

John Maynard Keynes's central proposition that a dollar increase in disposable income would increase consumption, but by less than the increase in disposable income, means the marginal propensity to consume (MPC)is:

The French economist Jean-Baptiste Say transformed the equality of total output and total spending into a law that can be expressed as follows:

Which of the following would cause the investment demand curve to shift?

Which of the following would shift the investment demand curve rightward?

Keynes once remarked that, in the long run, we're all dead. He was responding to the conventional wisdom of classical economics who argued that:

Exhibit 8-7 Aggregate expenditures function As shown in Exhibit 8-7, the marginal propensity to consume (MPC)is:

The consumption function will shift for all of the following reasons except:

A rightward shift of the investment demand curve could be caused by:

Exhibit 8-9 Aggregate expenditures function In Exhibit 8-9, aggregate income will equal consumption plus investment and the economy will be in equilibrium when real disposable income is:

The consumption function has a slope less than one because:

The consumption function is drawn on a graph with disposable income on the horizontal axis without including investment. Assume investment is autonomous and is added to the consumption function. The effect is:

The relationship between aggregate expenditures and disposable income is shown by the:

The sum of consumption and investment is:

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

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