Question 1

Exhibit 8-7 Consumption function
​
 
In Exhibit 8-7, the value of the marginal propensity to consume is:

Accepted Answer

A)  high for C' than for C. 
B)  lower for C" than for C. 
C)  lower for C" than for C'. 
D)  the same for C, C', and C". 
A)  high for C' than for C. 
B)  lower for C" than for C. 
C)  lower for C" than for C'. 
D)  the same for C, C', and C".

Question 2

Keynesians:

Accepted Answer

A)  accept the countercyclical policy of doing nothing, that is, allowing market forces to work. 
B)  believe that the level of aggregate demand in the 1930s was sufficient to generate full employment. 
C)  accept the fact that policymakers should eliminate inflation first before focusing on unemployment. 
D)  focus on increasing aggregate demand in order to stimulate the economy. 
A)  accept the countercyclical policy of doing nothing, that is, allowing market forces to work. 
B)  believe that the level of aggregate demand in the 1930s was sufficient to generate full employment. 
C)  accept the fact that policymakers should eliminate inflation first before focusing on unemployment. 
D)  focus on increasing aggregate demand in order to stimulate the economy.

Question 3

That part of disposable income not spent on consumption is:

Accepted Answer

A)  saved. 
B)  invested. 
C)  wasted. 
D)  borrowed. 
A)  saved. 
B)  invested. 
C)  wasted. 
D)  borrowed.

Question 4

Explain how changes in wealth, the price level, interest rates, and expectations alter the consumption curve.

Accepted Answer

An increase in wealth increases consumpt

Question 5

The most appropriate countercyclical policy, or stabilization policy, in times of unemployment, according to classical economists, is for the government to:

Accepted Answer

A)  increase the minimum wage. 
B)  do nothing. 
C)  stimulate aggregate demand. 
D)  cut taxes. 
A)  increase the minimum wage. 
B)  do nothing. 
C)  stimulate aggregate demand. 
D)  cut taxes.

Question 6

Which of the following will shift the consumption function upward?

Accepted Answer

A)  an increase in consumer wealth 
B)  an increase in disposable income 
C)  an increase in personal income taxes 
D)  a decrease in the MPC 
A)  an increase in consumer wealth 
B)  an increase in disposable income 
C)  an increase in personal income taxes 
D)  a decrease in the MPC

Question 7

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

Accepted Answer

A)  higher interest rates 
B)  expectations that the economy will grow in the future 
C)  a decrease in money holdings 
D)  higher capacity utilization rates 
A)  higher interest rates 
B)  expectations that the economy will grow in the future 
C)  a decrease in money holdings 
D)  higher capacity utilization rates

Question 8

If your disposable personal income increases from $30,000 to $40,000 and your savings increases from $2,000 to $4,000, your marginal propensity to save (MPS) 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 9

Keynes once remarked that, in the long run, we're all dead. He was responding to the conventional wisdom of classical economics who argued that:

Accepted Answer

A)  the supply curve should remain vertical in the long run. 
B)  World War I was fought to free Britain from economic ruin. 
C)  the depression was only a short-run, temporary departure from full-employment equilibrium. 
D)  market-based realities cause the estate tax to be too high. 
A)  the supply curve should remain vertical in the long run. 
B)  World War I was fought to free Britain from economic ruin. 
C)  the depression was only a short-run, temporary departure from full-employment equilibrium. 
D)  market-based realities cause the estate tax to be too high.

Question 10

A rightward shift of 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 11

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.

Exam 18: The Keynesian Model

Exhibit 8-7 Consumption function ​ In Exhibit 8-7, the value of the marginal propensity to consume is:

Keynesians:

That part of disposable income not spent on consumption is:

Explain how changes in wealth, the price level, interest rates, and expectations alter the consumption curve.

The most appropriate countercyclical policy, or stabilization policy, in times of unemployment, according to classical economists, is for the government to:

Which of the following will shift the consumption function upward?

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

If your disposable personal income increases from $30,000 to $40,000 and your savings increases from $2,000 to $4,000, your marginal propensity to save (MPS) is:

Keynes once remarked that, in the long run, we're all dead. He was responding to the conventional wisdom of classical economics who argued that:

A rightward shift of the investment demand curve would be caused by a(n):

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

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 8-7 Consumption function In Exhibit 8-7, the value of the marginal propensity to consume is: