Question 1

The Keynesian aggregate supply curve is

Accepted Answer

A)  vertical. 
B)  upward sloping. 
C)  horizontal until Natural Real GDP (QN)and vertical at QN. 
D)  sometimes upward sloping and sometimes horizontal. 
E)  downward sloping. 
A)  vertical. 
B)  upward sloping. 
C)  horizontal until Natural Real GDP (QN)and vertical at QN. 
D)  sometimes upward sloping and sometimes horizontal. 
E)  downward sloping.

Question 2

Which of the following statements is true?

Accepted Answer

A)  When TP = TE (total production = total expenditures),the economy is necessarily producing Natural Real GDP. 
B)  When TP is greater than TE,inventory levels unexpectedly fall. 
C)  When TE is greater than TP,inventory levels unexpectedly rise. 
D)  b and c 
E)  none of the above 
A)  When TP = TE (total production = total expenditures),the economy is necessarily producing Natural Real GDP. 
B)  When TP is greater than TE,inventory levels unexpectedly fall. 
C)  When TE is greater than TP,inventory levels unexpectedly rise. 
D)  b and c 
E)  none of the above

Question 3

When total expenditures are greater than total production,__________ is produced than households want to buy,which leads to __________ in inventory,which signals firms that they have __________,which causes firms to increase production.

Accepted Answer

A)  less; decreases; underproduced 
B)  more; increases; underproduced 
C)  less; increases; underproduced 
D)  more; decreases; overproduced 
A)  less; decreases; underproduced 
B)  more; increases; underproduced 
C)  less; increases; underproduced 
D)  more; decreases; overproduced

Question 4

What is the general format of the consumption function? Explain what each term means and use the consumption function to explain the three different ways that consumption can increase.

Accepted Answer

The general consumption formula is: C =

Question 5

Describe the three basic points that Keynes made regarding consumption.Briefly explain why consumption was such a main concern in the Keynesian model.

Accepted Answer

The three basic points that Keynes made

Question 6

Here is a consumption function: C = C0 + MPC(Yd).If C0 = $4,000,then we know that

Accepted Answer

A)  if Yd rises by $1,then Co rises by $1. 
B)  if Yd rises by $1,then C rises by $4,000. 
C)  as C0 rises by $150,C rises by $150. 
D)  as C0 rises by $150,Yd rises by $150. 
A)  if Yd rises by $1,then Co rises by $1. 
B)  if Yd rises by $1,then C rises by $4,000. 
C)  as C0 rises by $150,C rises by $150. 
D)  as C0 rises by $150,Yd rises by $150.

Question 7

The marginal propensity to consume plus the marginal propensity to save is always

Accepted Answer

A)  equal to zero. 
B)  greater than zero but less than one. 
C)  equal to one. 
D)  greater than one. 
A)  equal to zero. 
B)  greater than zero but less than one. 
C)  equal to one. 
D)  greater than one.

Question 8

The answer is: "It is sometimes in the best interest of business firms to pay their employees higher-than-equilibrium wage rates." What is the question?

Accepted Answer

A)  What do efficiency wage models imply? 
B)  What do classical economists say? 
C)  What is the central tenet of Say's law? 
D)  What did John Maynard Keynes say was the reason for inflexible wages? 
E)  none of the above 
A)  What do efficiency wage models imply? 
B)  What do classical economists say? 
C)  What is the central tenet of Say's law? 
D)  What did John Maynard Keynes say was the reason for inflexible wages? 
E)  none of the above

Question 9

The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result,__________ rises,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of goods and services they produce.

Accepted Answer

A)  consumption; TE; downward; fall; increase 
B)  consumption; TE; upward; fall; increase 
C)  consumption; TE; upward; rise; decrease 
D)  investment; TE; upward; fall; increase 
E)  investment; TP; leftward; fall; increase 
A)  consumption; TE; downward; fall; increase 
B)  consumption; TE; upward; fall; increase 
C)  consumption; TE; upward; rise; decrease 
D)  investment; TE; upward; fall; increase 
E)  investment; TP; leftward; fall; increase

Question 10

-Refer to Exhibit 10-3.When disposable income equals $2,000,saving equals

Accepted Answer

A)  -$20. 
B)  -$40. 
C)  0. 
D)  $40. 
E)  $20. 
A)  -$20. 
B)  -$40. 
C)  0. 
D)  $40. 
E)  $20.

Question 11

If consumption is greater than disposable income,it follows that

Accepted Answer

A)  interest rates are rising. 
B)  the budget deficit is shrinking. 
C)  saving is negative. 
D)  the multiplier is inoperative. 
E)  none of the above 
A)  interest rates are rising. 
B)  the budget deficit is shrinking. 
C)  saving is negative. 
D)  the multiplier is inoperative. 
E)  none of the above

Question 12

Suppose the MPC = 0.60 and government purchases increase by $40 billion.In Keynesian theory,which of the following is true?

Accepted Answer

A)  The TE curve shifts downward by $40 billion and total spending decreases by $40 billion. 
B)  The TE curve shifts upward by $40 billion,and total spending increases by $40 billion. 
C)  The TE curve shifts downward by $40 billion,and total spending decreases by $100 billion. 
D)  The TE curve shifts upward by $40 billion,and total spending increases by $100 billion. 
A)  The TE curve shifts downward by $40 billion and total spending decreases by $40 billion. 
B)  The TE curve shifts upward by $40 billion,and total spending increases by $40 billion. 
C)  The TE curve shifts downward by $40 billion,and total spending decreases by $100 billion. 
D)  The TE curve shifts upward by $40 billion,and total spending increases by $100 billion.

Question 13

Given that the economy is operating in the horizontal section of the aggregate supply curve in the simple Keynesian model,an increase in autonomous spending will ____________________,assuming that the economy remains in the horizontal section of the aggregate supply curve.

Accepted Answer

A)  increase Real GDP and raise the price level 
B)  decrease Real GDP and raise the price level 
C)  increase Real GDP and leave the price level unchanged 
D)  increase Real GDP and lower the price level 
A)  increase Real GDP and raise the price level 
B)  decrease Real GDP and raise the price level 
C)  increase Real GDP and leave the price level unchanged 
D)  increase Real GDP and lower the price level

Question 14

If autonomous consumption rises by $70 and,as a result,Real GDP rises by $350,then the marginal propensity to consume is

Accepted Answer

A)  0.20. 
B)  0.80. 
C)  0.25. 
D)  0.75. 
E)  none of the above 
A)  0.20. 
B)  0.80. 
C)  0.25. 
D)  0.75. 
E)  none of the above

Question 15

If autonomous consumption rises by $40 and,as a result,Real GDP rises by $240,then the multiplier is

Accepted Answer

A)  4. 
B)  5. 
C)  6. 
D)  10. 
E)  none of the above 
A)  4. 
B)  5. 
C)  6. 
D)  10. 
E)  none of the above

Question 16

According to Keynes,the economy is inherently unstable and may get stuck in a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 17

-Refer to Exhibit 10-1.At all points on the 45-degree line,

Accepted Answer

A) TP = Real GDP. B) TP > Real GDP. C) TP < Real GDP. D) all of the above are possible. A) TP = Real GDP. B) TP > Real GDP. C) TP < Real GDP. D) all of the above are possible.

Question 18

The horizontal investment curve used to derive the TE curve implies that investment is

Accepted Answer

A)  directly related to Real GDP. 
B)  indirectly related to Real GDP. 
C)  independent of Real GDP. 
D)  sometimes directly and sometimes indirectly related to Real GDP,depending upon whether it is planned capital or planned inventory investment. 
A)  directly related to Real GDP. 
B)  indirectly related to Real GDP. 
C)  independent of Real GDP. 
D)  sometimes directly and sometimes indirectly related to Real GDP,depending upon whether it is planned capital or planned inventory investment.

Question 19

John Maynard Keynes wrote which of the following?

Accepted Answer

A)  Das Kapital 
B)  The Scope and Method of Political Economy 
C)  Wealth of Nations 
D)  The General Theory of Employment,Interest and Money 
E)  all of the above 
A)  Das Kapital 
B)  The Scope and Method of Political Economy 
C)  Wealth of Nations 
D)  The General Theory of Employment,Interest and Money 
E)  all of the above

Question 20

If total production (TP)is less than total expenditures (TE),it follows that

Accepted Answer

A)  optimum inventory levels fall. 
B)  firms have underproduced. 
C)  firms increase the quantity of goods they produce. 
D)  b and c 
E)  a,b,and c 
A)  optimum inventory levels fall. 
B)  firms have underproduced. 
C)  firms increase the quantity of goods they produce. 
D)  b and c 
E)  a,b,and c

Exam 10: Monopoly

The Keynesian aggregate supply curve is

Which of the following statements is true?

When total expenditures are greater than total production,__________ is produced than households want to buy,which leads to __________ in inventory,which signals firms that they have __________,which causes firms to increase production.

What is the general format of the consumption function? Explain what each term means and use the consumption function to explain the three different ways that consumption can increase.

Describe the three basic points that Keynes made regarding consumption.Briefly explain why consumption was such a main concern in the Keynesian model.

Here is a consumption function: C = C0 + MPC(Yd).If C0 = $4,000,then we know that

The marginal propensity to consume plus the marginal propensity to save is always

The answer is: "It is sometimes in the best interest of business firms to pay their employees higher-than-equilibrium wage rates." What is the question?

The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result,__________ rises,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of goods and services they produce.

-Refer to Exhibit 10-3.When disposable income equals $2,000,saving equals

If consumption is greater than disposable income,it follows that

Suppose the MPC = 0.60 and government purchases increase by $40 billion.In Keynesian theory,which of the following is true?

Given that the economy is operating in the horizontal section of the aggregate supply curve in the simple Keynesian model,an increase in autonomous spending will ____________________,assuming that the economy remains in the horizontal section of the aggregate supply curve.

If autonomous consumption rises by $70 and,as a result,Real GDP rises by $350,then the marginal propensity to consume is

If autonomous consumption rises by $40 and,as a result,Real GDP rises by $240,then the multiplier is

According to Keynes,the economy is inherently unstable and may get stuck in a recessionary gap.

-Refer to Exhibit 10-1.At all points on the 45-degree line,

The horizontal investment curve used to derive the TE curve implies that investment is

John Maynard Keynes wrote which of the following?

If total production (TP)is less than total expenditures (TE),it follows that

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When total expenditures are greater than total production, is produced than households want to buy,which leads to in inventory,which signals firms that they have __,which causes firms to increase production.

Here is a consumption function: C = C₀ + MPC(Y_d).If C₀ = $4,000,then we know that

The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result, rises,the curve shifts ,inventory levels unexpectedly ,and business firms __ the quantity of goods and services they produce.