Question 1

According to John Maynard Keynes:

Accepted Answer

A)  aggregate expenditures (demand) can be forever inadequate to achieve full employment. 
B)  aggregate output (supply) can be forever inadequate to achieve full employment. 
C)  the economy would automatically adjust to full employment in the long run. 
D)  neither aggregate demand nor aggregate supply is a determinant of full-employment real GDP. 
A)  aggregate expenditures (demand) can be forever inadequate to achieve full employment. 
B)  aggregate output (supply) can be forever inadequate to achieve full employment. 
C)  the economy would automatically adjust to full employment in the long run. 
D)  neither aggregate demand nor aggregate supply is a determinant of full-employment real GDP.

Question 2

Which of the following would not cause the investment demand curve to shift?

Accepted Answer

A)  animal spirits (expectations) 
B)  technological change 
C)  change in business taxes 
D)  change in the interest rate 
A)  animal spirits (expectations) 
B)  technological change 
C)  change in business taxes 
D)  change in the interest rate

Question 3

If the marginal propensity to consume = 0.75, then:

Accepted Answer

A)  the marginal propensity to save = 0.75. 
B)  the marginal propensity to save = 0.25 
C)  the marginal propensity to save = 0.20. 
D)  since the marginal propensity to save and the marginal propensity to consume are unrelated, we cannot determine the marginal propensity to save from the information given. 
A)  the marginal propensity to save = 0.75. 
B)  the marginal propensity to save = 0.25 
C)  the marginal propensity to save = 0.20. 
D)  since the marginal propensity to save and the marginal propensity to consume are unrelated, we cannot determine the marginal propensity to save from the information given.

Question 4

Exhibit 8-2 Consumption function
 
As shown in Exhibit 8-2, the marginal propensity to consume (MPC) 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 5

If, for a given disposable income level, the disposable income line lies above the consumption curve, saving:

Accepted Answer

A)  equals consumption. 
B)  is greater than zero. 
C)  is less than zero. 
D)  is equal to zero. 
A)  equals consumption. 
B)  is greater than zero. 
C)  is less than zero. 
D)  is equal to zero.

Question 6

Exhibit 8-9 Investment expenditures
​
 
In Exhibit 8-9, which of the following could cause the shift from I1 to I2?

Accepted Answer

A)  lower money holdings 
B)  lower interest rates 
C)  expectations of a future economic slow-down 
D)  lower disposable income 
A)  lower money holdings 
B)  lower interest rates 
C)  expectations of a future economic slow-down 
D)  lower disposable income

Question 7

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

Question 8

Exhibit 8-10 Consumption function
​
 
In Exhibit 8-10, which of the following could cause the shift from C1 to C2?

Accepted Answer

A)  An increase in disposable income. 
B)  A decrease in disposable income. 
C)  Legislation tightening credit availability. 
D)  Legislation lowering tax rates. 
A)  An increase in disposable income. 
B)  A decrease in disposable income. 
C)  Legislation tightening credit availability. 
D)  Legislation lowering tax rates.

Question 9

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 10

Exhibit 8-8 Consumption function
​
 
In Exhibit 8-8, 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 
A)  higher wealth 
B)  higher interest rates 
C)  higher taxes 
D)  a technological breakthrough

Question 11

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 12

Describe the relationship between investment and the level of disposable income.

Accepted Answer

Investment is autonomous with respect to

Question 13

According to Keynes, what is the most important determinant of households' spending on goods and services?

Accepted Answer

A)  the price level 
B)  the interest rate 
C)  autonomous consumption 
D)  disposable income 
A)  the price level 
B)  the interest rate 
C)  autonomous consumption 
D)  disposable income

Question 14

A primary emphasis of the Keynesian school is the economy has a tendency to:

Accepted Answer

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

Question 15

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. 
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.

Question 16

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

Accepted Answer

A)  real disposable income. 
B)  can be caused by a change in the price level. 
C)  the marginal propensity to consume (MP
C) . 
D)  consumer wealth. 
A)  real disposable income. 
B)  can be caused by a change in the price level. 
C)  the marginal propensity to consume (MP
C) . 
D)  consumer wealth.

Question 17

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 18

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.

Question 19

Which of the following will shift the consumption function upward?

Accepted Answer

A)  a tax increase 
B)  expectations of inflation 
C)  higher disposable income 
D)  lower wealth holdings 
A)  a tax increase 
B)  expectations of inflation 
C)  higher disposable income 
D)  lower wealth holdings

Question 20

The marginal propensity to consume (MPC) is the slope of the:

Accepted Answer

A)  GDP curve. 
B)  disposable income curve. 
C)  consumption function. 
D)  autonomous consumption curve. 
A)  GDP curve. 
B)  disposable income curve. 
C)  consumption function. 
D)  autonomous consumption curve.

Exam 18: The Keynesian Model

According to John Maynard Keynes:

Which of the following would not cause the investment demand curve to shift?

If the marginal propensity to consume = 0.75, then:

Exhibit 8-2 Consumption function As shown in Exhibit 8-2, the marginal propensity to consume (MPC) is:

If, for a given disposable income level, the disposable income line lies above the consumption curve, saving:

Exhibit 8-9 Investment expenditures ​ In Exhibit 8-9, which of the following could cause the shift from I1 to I2?

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 8-10 Consumption function ​ In Exhibit 8-10, which of the following could cause the shift from C1 to C2?

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

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

The marginal propensity to consume is defined as the:

Describe the relationship between investment and the level of disposable income.

According to Keynes, what is the most important determinant of households' spending on goods and services?

A primary emphasis of the Keynesian school is the economy has a tendency to:

If people's real assets increase, then the:

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

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

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

Which of the following will shift the consumption function upward?

The marginal propensity to consume (MPC) is the slope of the:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

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

Understanding Direct and Inverse Relationships between Variables

Filters

Exhibit 8-9 Investment expenditures In Exhibit 8-9, which of the following could cause the shift from I₁ to I₂?

Exhibit 8-10 Consumption function In Exhibit 8-10, which of the following could cause the shift from C₁ to C₂?

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