Exam 18: The Keynesian Model

Michelle Martelle, CEO of Michelle Enterprises, has five projects in hand and is considering which, if any, to undertake. Their expected returns are: project A = 12 percent, project B = 7 percent, project C = 10 percent, project D = 9 percent, and project E = 8 percent. If the interest rate is 8.5 percent, which, if any, investment projects will she accept?

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

Explain why the marginal propensity to save and the marginal propensity to consume sum to 1.

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

Which one of the following changes is consistent with a change in an economy's consumption function from C = $500 billion + 0.80Y to C = $700 billion + 0.80Y?

What are the marginal propensity to consume (MPC) and the marginal propensity to save (MPS)? How is the MPC related to the consumption function?

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

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

The consumption function shows the relationship between consumer expenditures and:

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

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

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

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

A downward shift in the consumption function can be caused by:

Given the consumption function C = $500 billion + 0.80Y, an increase in disposable income from $6,000 billion to $7,000 billion will cause consumption to increase by:

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

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

The investment demand curve shows the amount businesses spend for investment goods at different possible:

A shift in the consumption function:

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