Question 1

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

Accepted Answer

A)  higher interest rates 
B)  an increase in disposable income 
C)  a decrease in disposable income 
D)  lower tax rates 
A)  higher interest rates 
B)  an increase in disposable income 
C)  a decrease in disposable income 
D)  lower tax rates

Question 2

Keynesian economics:

Accepted Answer

A)  affirms the classical economists' basic premise concerning competitive markets. 
B)  believes that monopolies and unions tend to be permanent fixtures in our economy and the prices they create tend to be flexible, at least downwardly. 
C)  emphasizes the possibility that an economy can never be in equilibrium at less than full employment. 
D)  believes that unemployment results when aggregate demand is insufficient to reach a full-employment level of real GDP. 
A)  affirms the classical economists' basic premise concerning competitive markets. 
B)  believes that monopolies and unions tend to be permanent fixtures in our economy and the prices they create tend to be flexible, at least downwardly. 
C)  emphasizes the possibility that an economy can never be in equilibrium at less than full employment. 
D)  believes that unemployment results when aggregate demand is insufficient to reach a full-employment level of real GDP.

Question 3

A lower interest rate makes more investment projects profitable, meaning that:

Accepted Answer

A)  there is a direct relationship between the rate of interest and the quantity of investment spending. 
B)  there is an inverse relationship between the rate of interest and the quantity of investment spending. 
C)  there is no relationship between the rate of interest and the quantity of investment spending. 
D)  the demand curve for investment spending is horizontal. 
A)  there is a direct relationship between the rate of interest and the quantity of investment spending. 
B)  there is an inverse relationship between the rate of interest and the quantity of investment spending. 
C)  there is no relationship between the rate of interest and the quantity of investment spending. 
D)  the demand curve for investment spending is horizontal.

Question 4

Exhibit 8-8 Consumption function
​
 
In Exhibit 8-8, 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 
A)  a decrease in real asset holdings 
B)  lower interest rates 
C)  expectations that the economy will grow 
D)  expectations of lower future prices

Question 5

If the interest rate increases, then the:

Accepted Answer

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

Question 6

Which one of the following will shift the investment demand curve leftward?

Accepted Answer

A)  a technological breakthrough 
B)  higher tax rates 
C)  optimistic business expectations 
D)  a lower rate of capacity utilization 
A)  a technological breakthrough 
B)  higher tax rates 
C)  optimistic business expectations 
D)  a lower rate of capacity utilization

Question 7

When economists say that private investment is "autonomous," they mean that it:

Accepted Answer

A)  will never change. 
B)  is not dependent on the current level of disposable income. 
C)  is determined by the "animal spirits" of business decision makers. 
D)  is determined by the level of saving. 
A)  will never change. 
B)  is not dependent on the current level of disposable income. 
C)  is determined by the "animal spirits" of business decision makers. 
D)  is determined by the level of saving.

Question 8

If the interest rate increases, then the:

Accepted Answer

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

Question 9

If disposable income is $400 billion, consumption spending is $380 billion, and MPC is 0.5, what is the level of saving?

Accepted Answer

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

Question 10

If consumption spending is larger than disposable income,

Accepted Answer

A)  saving is positive. 
B)  dissaving occurs. 
C)  saving is exactly zero. 
D)  a depression results. 
A)  saving is positive. 
B)  dissaving occurs. 
C)  saving is exactly zero. 
D)  a depression results.

Question 11

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 12

If your disposable income increases from $30,000 to $35,000 and your consumption increases from $11,000 to $12,000, your marginal propensity to consume (MPC) is:

Accepted Answer

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

Question 13

If real disposable income increases from $110,000 to $120,000 and consumption increases from $108,000 to $114,000, the marginal propensity to consume is:

Accepted Answer

A)  0.40. 
B)  0.60. 
C)  0.94. 
D)  1.60. 
A)  0.40. 
B)  0.60. 
C)  0.94. 
D)  1.60.

Question 14

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 15

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 16

Exhibit 8-2 Consumption function
 
As shown in Exhibit 8-2, dissaving occurs:

Accepted Answer

A)  at $5 trillion. 
B)  between 0 and $4 trillion. 
C)  where disposable income is greater than $4 trillion. 
D)  at $8 trillion. 
A)  at $5 trillion. 
B)  between 0 and $4 trillion. 
C)  where disposable income is greater than $4 trillion. 
D)  at $8 trillion.

Question 17

An increase in the wealth of households, other things remaining the same, can result in ____ the consumption function.

Accepted Answer

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

Question 18

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

Accepted Answer

A)  0.2. 
B)  0.6. 
C)  0.8. 
D)  1.0. 
A)  0.2. 
B)  0.6. 
C)  0.8. 
D)  1.0.

Question 19

If the economy were left on its own without the interference of government or the Fed, it would move toward an equilibrium rate of growth that would produce, with only minor interruptions, full employment without inflation. What school supports this view?

Accepted Answer

A)  Classical. 
B)  Keynesian. 
C)  Monetarism. 
D)  Supply-side. 
A)  Classical. 
B)  Keynesian. 
C)  Monetarism. 
D)  Supply-side.

Question 20

The nation has its own MPC. When disposable income increases from $300 billion to $400 billion, national consumption increases from $300 billion to $360 billion. At Y = $400 billion, the MPC is:

Accepted Answer

A)  0.2. 
B)  0.5. 
C)  0.6. 
D)  0.67. 
A)  0.2. 
B)  0.5. 
C)  0.6. 
D)  0.67.

Exam 18: The Keynesian Model

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

Keynesian economics:

A lower interest rate makes more investment projects profitable, meaning that:

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

If the interest rate increases, then the:

Which one of the following will shift the investment demand curve leftward?

When economists say that private investment is "autonomous," they mean that it:

If the interest rate increases, then the:

If disposable income is $400 billion, consumption spending is $380 billion, and MPC is 0.5, what is the level of saving?

If consumption spending is larger than disposable income,

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

If your disposable income increases from $30,000 to $35,000 and your consumption increases from $11,000 to $12,000, your marginal propensity to consume (MPC) is:

If real disposable income increases from $110,000 to $120,000 and consumption increases from $108,000 to $114,000, the marginal propensity to consume is:

In the short-run Keynesian model, investment is:

Classical economists believed that:

Exhibit 8-2 Consumption function As shown in Exhibit 8-2, dissaving occurs:

An increase in the wealth of households, other things remaining the same, can result in ____ the consumption function.

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

If the economy were left on its own without the interference of government or the Fed, it would move toward an equilibrium rate of growth that would produce, with only minor interruptions, full employment without inflation. What school supports this view?

The nation has its own MPC. When disposable income increases from $300 billion to $400 billion, national consumption increases from $300 billion to $360 billion. At Y = $400 billion, the MPC is:

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 8-10 Consumption function HIn 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?