Question 1

Exhibit 8-6 Consumption function
​
 
In Exhibit 8-6, the level of autonomous consumption is:

Accepted Answer

A)  $100. 
B)  $150. 
C)  $50. 
D)  $0. 
A)  $100. 
B)  $150. 
C)  $50. 
D)  $0.

Question 2

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 3

The popular theory prior to the Great Depression that the economy will automatically adjust to achieve full employment in the long run is:

Accepted Answer

A)  supply-side economics. 
B)  Keynesian economics. 
C)  classical economics. 
D)  mercantilism 
A)  supply-side economics. 
B)  Keynesian economics. 
C)  classical economics. 
D)  mercantilism

Question 4

Exhibit 8-2 Consumption function
 
As shown in Exhibit 8-2, autonomous consumption is:

Accepted Answer

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

Question 5

Exhibit 8-1 Disposable income and consumption data
 
In Exhibit 8-1, when disposable income (Y) is increased from $0 to $1,000 to $2,000, the marginal propensity to consume:

Accepted Answer

A)  is negative. 
B)  decreases from 0.9 to 0.8. 
C)  decreases from 0.8 to 0.7. 
D)  increases from 0.8 to 0.9. 
A)  is negative. 
B)  decreases from 0.9 to 0.8. 
C)  decreases from 0.8 to 0.7. 
D)  increases from 0.8 to 0.9.

Question 6

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)  an increase in the price level 
A)  an increase in consumer wealth 
B)  a decrease in consumer wealth 
C)  a decrease in autonomous consumption 
D)  an increase in the price level

Question 7

A movement along a consumption function is caused by:

Accepted Answer

A)  a change in households' real assets. 
B)  a change in interest rates. 
C)  changes in households' disposable incomes. 
D)  expectations of price changes. 
A)  a change in households' real assets. 
B)  a change in interest rates. 
C)  changes in households' disposable incomes. 
D)  expectations of price changes.

Question 8

A decrease in the rate of interest, other things being equal, will cause a:

Accepted Answer

A)  rightward shift of the investment demand curve. 
B)  movement upward along the investment demand curve. 
C)  movement downward along the investment demand curve. 
D)  leftward shift of the investment demand curve. 
A)  rightward shift of the investment demand curve. 
B)  movement upward along the investment demand curve. 
C)  movement downward along the investment demand curve. 
D)  leftward shift of the investment demand curve.

Question 9

Consider the Keynesian consumption function. If disposable income is greater than the break-even level of disposable income, then households will be:

Accepted Answer

A)  investing. 
B)  borrowing. 
C)  dissaving. 
D)  saving. 
A)  investing. 
B)  borrowing. 
C)  dissaving. 
D)  saving.

Question 10

If people expect prices to fall in the future,

Accepted Answer

A)  their consumption function in the present will shift downward. 
B)  their consumption function in the present will shift upward. 
C)  they will decrease their current levels of consumption by moving down along their consumption functions. 
D)  they will increase their current levels of consumption by moving up along their consumption functions. 
A)  their consumption function in the present will shift downward. 
B)  their consumption function in the present will shift upward. 
C)  they will decrease their current levels of consumption by moving down along their consumption functions. 
D)  they will increase their current levels of consumption by moving up along their consumption functions.

Question 11

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

Accepted Answer

A)  an increase in business taxes 
B)  a tax credit for new investment 
C)  firms move from full capacity to unused capacity 
D)  interest rates decrease 
A)  an increase in business taxes 
B)  a tax credit for new investment 
C)  firms move from full capacity to unused capacity 
D)  interest rates decrease

Question 12

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 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. 
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.

Question 14

The school of thought that emphasizes the natural tendency for an economy to move toward equilibrium full employment is known as the:

Accepted Answer

A)  Keynesian school. 
B)  supply-side school. 
C)  rational expectations school. 
D)  classical school. 
A)  Keynesian school. 
B)  supply-side school. 
C)  rational expectations school. 
D)  classical school.

Question 15

Which one of the following will shift the consumption function upward?

Accepted Answer

A)  higher interest rates 
B)  an increase in real assets 
C)  expectations of future economic growth 
D)  lower capacity utilization rates 
A)  higher interest rates 
B)  an increase in real assets 
C)  expectations of future economic growth 
D)  lower capacity utilization rates

Question 16

Which one of the following will shift the consumption function downward?

Accepted Answer

A)  an increase in disposable income 
B)  a decrease in disposable income 
C)  legislation making credit harder to obtain 
D)  lower tax rates 
A)  an increase in disposable income 
B)  a decrease in disposable income 
C)  legislation making credit harder to obtain 
D)  lower tax rates

Question 17

Real investment spending is ____ real personal consumption.

Accepted Answer

A)  equal to 
B)  greater than 
C)  stable compared to 
D)  highly volatile compared to 
A)  equal to 
B)  greater than 
C)  stable compared to 
D)  highly volatile compared to

Question 18

If the economy is experiencing less than full-employment, the Keynesian school recommends that the government:

Accepted Answer

A)  do nothing to stimulate the economy. 
B)  undertake fiscal policy to stimulate aggregate demand. 
C)  undertake fiscal policy to stimulate aggregate supply. 
D)  balance the budget to stimulate aggregate demand. 
A)  do nothing to stimulate the economy. 
B)  undertake fiscal policy to stimulate aggregate demand. 
C)  undertake fiscal policy to stimulate aggregate supply. 
D)  balance the budget to stimulate aggregate demand.

Question 19

Exhibit 8-7 Consumption function
​
 
In Exhibit 8-7, the shift from C to C' could be caused by a(n):

Accepted Answer

A)  increase in disposable income. 
B)  expectation of inflation. 
C)  increase in interest rates. 
D)  increase in the level of saving. 
A)  increase in disposable income. 
B)  expectation of inflation. 
C)  increase in interest rates. 
D)  increase in the level of saving.

Question 20

The investment demand curve as a function of various possible interest rates for the entire economy is assumed to be:

Accepted Answer

A)  positively sloped. 
B)  negatively sloped. 
C)  rising, then falling. 
D)  falling, then rising. 
A)  positively sloped. 
B)  negatively sloped. 
C)  rising, then falling. 
D)  falling, then rising.

Exam 18: The Keynesian Model

Exhibit 8-6 Consumption function ​ In Exhibit 8-6, the level of autonomous consumption is:

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 popular theory prior to the Great Depression that the economy will automatically adjust to achieve full employment in the long run is:

Exhibit 8-2 Consumption function As shown in Exhibit 8-2, autonomous consumption is:

Exhibit 8-1 Disposable income and consumption data In Exhibit 8-1, when disposable income (Y) is increased from $0 to $1,000 to $2,000, the marginal propensity to consume:

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

A movement along a consumption function is caused by:

A decrease in the rate of interest, other things being equal, will cause a:

Consider the Keynesian consumption function. If disposable income is greater than the break-even level of disposable income, then households will be:

If people expect prices to fall in the future,

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

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

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

The school of thought that emphasizes the natural tendency for an economy to move toward equilibrium full employment is known as the:

Which one of the following will shift the consumption function upward?

Which one of the following will shift the consumption function downward?

Real investment spending is ____ real personal consumption.

If the economy is experiencing less than full-employment, the Keynesian school recommends that the government:

Exhibit 8-7 Consumption function ​ In Exhibit 8-7, the shift from C to C' could be caused by a(n):

The investment demand curve as a function of various possible interest rates for the entire economy is assumed to be:

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 8-6 Consumption function In Exhibit 8-6, the level of autonomous consumption is:

Exhibit 8-7 Consumption function In Exhibit 8-7, the shift from C to C' could be caused by a(n):