Question 1

The value of consumption at each level of disposable personal income, all other determinants of consumption unchanged, is shown by the:

Accepted Answer

A) aggregate dissaving curve. 
B) consumption function. 
C) investment schedule. 
D) savings function. 
A) aggregate dissaving curve. 
B) consumption function. 
C) investment schedule. 
D) savings function.

Question 2

Which of the following events would produce an upward shift in the consumption function, other things being equal?

Accepted Answer

A) An increase in consumer wealth. 
B) A decrease in consumer wealth. 
C) A decrease in autonomous consumption. 
D) Both b and c. 
A) An increase in consumer wealth. 
B) A decrease in consumer wealth. 
C) A decrease in autonomous consumption. 
D) Both b and c.

Question 3

John Maynard Keynes and his followers argued that the Great Depression was primarily the result of:

Accepted Answer

A) excessive government spending. 
B) large budget deficits. 
C) the perverse monetary policies of the Fed. 
D) insufficient aggregate spending on goods and services. 
A) excessive government spending. 
B) large budget deficits. 
C) the perverse monetary policies of the Fed. 
D) insufficient aggregate spending on goods and services.

Question 4

In the basic Keynesian model, the major determinant of consumption expenditures is:

Accepted Answer

A) the interest rate. 
B) inflation. 
C) investment. 
D) disposable income. 
A) the interest rate. 
B) inflation. 
C) investment. 
D) disposable income.

Question 5

As shown in Exhibit 8-3, dissaving occurs:

Accepted Answer

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

Question 6

If a major technological breakthrough occurs, then the:

Accepted Answer

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

Question 7

Exhibit 8-15 Disposable income and consumption data        
In Exhibit 8-15, when disposable income is $7,000, then saving will equal:

Accepted Answer

A) $2,500.00. 
B) $1,750.00. 
C) $1,562.50. 
D) $1,250.00. 
E) $750.00. 
A) $2,500.00. 
B) $1,750.00. 
C) $1,562.50. 
D) $1,250.00. 
E) $750.00.

Question 8

Autonomous consumption is consumption that:

Accepted Answer

A) varies directly with disposable income. 
B) varies inversely with disposable income. 
C) is independent of the level of disposable income. 
D) is constant at first and then varies with disposable income. 
A) varies directly with disposable income. 
B) varies inversely with disposable income. 
C) is independent of the level of disposable income. 
D) is constant at first and then varies with disposable income.

Question 9

If disposable income is $400 billion, autonomous consumption is $60 billion, and MPC is 0.8, what is the level of saving?

Accepted Answer

A) $20 billion. 
B) $210 billion. 
C) $380 billion. 
D) $590 billion. 
E) $780 billion. 
A) $20 billion. 
B) $210 billion. 
C) $380 billion. 
D) $590 billion. 
E) $780 billion.

Question 10

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

Accepted Answer

A) Higher wealth. 
B) Higher interest rates. 
C) Higher taxes. 
D) A technological breakthrough. 
E) Expectations of future economic growth. 
A) Higher wealth. 
B) Higher interest rates. 
C) Higher taxes. 
D) A technological breakthrough. 
E) Expectations of future economic growth.

Question 11

When sketched as a function of disposable income, the investment demand curve is:

Accepted Answer

A) always horizontal. 
B) always vertical. 
C) upward sloping. 
D) parabolic. 
A) always horizontal. 
B) always vertical. 
C) upward sloping. 
D) parabolic.

Question 12

Explain how a decrease in the interest rate will affect investment.

Accepted Answer

The interest rate is the cost of borrowi

Question 13

Consumption spending that is independent of the level of disposable income is known as:

Accepted Answer

A) marginal consumption. 
B) transitory consumption. 
C) permanent consumption. 
D) relative consumption. 
E) autonomous consumption. 
A) marginal consumption. 
B) transitory consumption. 
C) permanent consumption. 
D) relative consumption. 
E) autonomous consumption.

Question 14

Prior to the Great Depression, classical economists believed that a recessionary downturn would be reversed by:

Accepted Answer

A) higher wages and prices. 
B) lower wages and prices. 
C) an expansionary monetary policy on the part of the Federal Reserve System. 
D) an increase in government spending that would stimulate aggregate demand. 
A) higher wages and prices. 
B) lower wages and prices. 
C) an expansionary monetary policy on the part of the Federal Reserve System. 
D) an increase in government spending that would stimulate aggregate demand.

Question 15

Use the table below to answer the following question.   What is the marginal propensity to consume?

Accepted Answer

A) 0.33. 
B) 0.67. 
C) 0.96. 
D) 1.5. 
A) 0.33. 
B) 0.67. 
C) 0.96. 
D) 1.5.

Question 16

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 $100 billion, saving is:

Accepted Answer

A) $100 billion. 
B) $75 billion. 
C) - $75 billion. 
D) - $175 billion. 
A) $100 billion. 
B) $75 billion. 
C) - $75 billion. 
D) - $175 billion.

Question 17

Which of the following will increase investment spending?

Accepted Answer

A) More optimistic business expectations. 
B) An increase in interest rates. 
C) An increase in business taxes. 
D) A decrease in capacity utilization. 
E) All of these. 
A) More optimistic business expectations. 
B) An increase in interest rates. 
C) An increase in business taxes. 
D) A decrease in capacity utilization. 
E) All of these.

Question 18

In the short-run Keynesian model, investment is:

Accepted Answer

A) autonomous in relation to the interest rate. 
B) upward sloping in relation to the price level. 
C) downward sloping in relation to disposable income. 
D) autonomous in relation to real GDP. 
A) autonomous in relation to the interest rate. 
B) upward sloping in relation to the price level. 
C) downward sloping in relation to disposable income. 
D) autonomous in relation to real GDP.

Question 19

If the interest rate rises, then firms' investment spending:

Accepted Answer

A) falls. 
B) also rises. 
C) remains unchanged 
D) reacts unpredictably. 
A) falls. 
B) also rises. 
C) remains unchanged 
D) reacts unpredictably.

Question 20

Classical economic theory predicted that in the long run the economy would experience:

Accepted Answer

A) below full unemployment. 
B) rising rate of inflation. 
C) full employment. 
D) idle factors of production. 
A) below full unemployment. 
B) rising rate of inflation. 
C) full employment. 
D) idle factors of production.

Exam 8: The Keynesian Model

The value of consumption at each level of disposable personal income, all other determinants of consumption unchanged, is shown by the:

Which of the following events would produce an upward shift in the consumption function, other things being equal?

John Maynard Keynes and his followers argued that the Great Depression was primarily the result of:

In the basic Keynesian model, the major determinant of consumption expenditures is:

As shown in Exhibit 8-3, dissaving occurs:

If a major technological breakthrough occurs, then the:

Exhibit 8-15 Disposable income and consumption data In Exhibit 8-15, when disposable income is $7,000, then saving will equal:

Autonomous consumption is consumption that:

If disposable income is $400 billion, autonomous consumption is $60 billion, and MPC is 0.8, what is the level of saving?

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

When sketched as a function of disposable income, the investment demand curve is:

Explain how a decrease in the interest rate will affect investment.

Consumption spending that is independent of the level of disposable income is known as:

Prior to the Great Depression, classical economists believed that a recessionary downturn would be reversed by:

Use the table below to answer the following question. What is the marginal propensity to consume?

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 $100 billion, saving is:

Which of the following will increase investment spending?

In the short-run Keynesian model, investment is:

If the interest rate rises, then firms' investment spending:

Classical economic theory predicted that in the long run the economy would experience:

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?