Question 1

What type of relationship exists between the marginal propensity to consume (MPC)and the multiplier? Explain why this relationship exists,giving a hypothetical numerical example to help support your answer.

Accepted Answer

The answer of What type of relationship exists between the...

Question 2

Considering both the Keynesian and the aggregate demand-supply frameworks,if households as a group experience an increase in wealth at a given price level,then the TE curve shifts __________,the AD curve shifts __________,and Real GDP __________.

Accepted Answer

A)  downward; leftward; decreases 
B)  downward; rightward; decreases 
C)  upward; rightward; increases 
D)  upward; leftward; increases

Question 3

In a recessionary gap,the implications of downward wage inflexibility are that there will be

Accepted Answer

A)  further leftward shifts of AD that worsen unemployment. 
B)  no further leftward shifts of AD,allowing the shifts in SRAS to close the recessionary gap. 
C)  no further leftward shifts of SRAS,allowing the shifts in AD to close the recessionary gap. 
D)  no rightward shifts of SRAS,allowing for the possibility of persistent high unemployment.

Question 4

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

Accepted Answer

A)  producers have produced more than individuals buy. 
B)  optimum inventory levels rise. 
C)  firms have underproduced. 
D)  actual inventory levels unexpectedly rise. 
E)  a and d

Question 5

On a TE-TP diagram consider a level of Real GDP at which the vertical distance to the TE line exceeds the vertical distance to the 45-degree line.This level of Real GDP is __________ its equilibrium level,with __________.

Accepted Answer

A)  above; TE > TP 
B)  above; TE  TP 
D)  below; TE < TP

Question 6

Which of the following statements would Keynes have been most likely to agree with?

Accepted Answer

A)  Saving is more responsive to changes in interest rates than to changes in income. 
B)  Say's law holds in both a barter and money economy. 
C)  The internal structure of the economy is not always competitive enough to allow prices to fall. 
D)  Investment is exclusively dependent upon the interest rate. 
E)  none of the above

Question 7

-Refer to Exhibit 10-6.If government purchases decrease,it follows that

Accepted Answer

A)  the TE curve will shift upward,possibly passing through point 2. 
B)  the TE curve will shift downward,possibly passing through point 3. 
C)  the TE curve will not change but the economy will move from point 1 to point 3. 
D)  the TE curve will not change but the economy will move from point 1 to point 2. 
E)  At the new equilibrium position,Real GDP will necessarily be Q3.

Question 8

Keynes assumed consumption is

Accepted Answer

A)  inversely related to the rate of interest. 
B)  directly related to disposable income. 
C)  directly related to investment. 
D)  less than disposable income. 
E)  both b and d

Question 9

-Refer to Exhibit 10-5 above.The equilibrium level of Real GDP is

Accepted Answer

A)  $200 billion. 
B)  $400 billion. 
C)  $600 billion. 
D)  $800 billion.

Question 10

-Refer to Exhibit 10-5 When TE is $700 billion,what state is the economy in?

Accepted Answer

A)  TE  TP,individuals are buying more output than firms produce. 
C)  TE = TP,the economy is in equilibrium. 
D)  TE  TP,individuals are buying less output than firms produce.

Question 11

Which of the following is a characteristic of consumption according to Keynes?

Accepted Answer

A)  consumption depends on disposable income 
B)  consumption and disposable income have a direct relationship 
C)  when disposable income changes,consumption changes by less 
D)  a and c 
E)  a,b,and c

Question 12

According to Keynes,aggregate demand could be too low in an economy.What does this mean?

Accepted Answer

A)  It means there is not enough purchasing power in the economy to maintain stable prices. 
B)  It means there are too many of some goods produced and too few of other goods produced. 
C)  It means spending in the economy is too low to bring about full employment. 
D)  It means that wages may get stuck in a recessionary gap because there is not enough demand (in the economy)to increase them. 
E)  none of the above

Question 13

The economy is in equilibrium,TP = TE,and Real GDP is $4,555 billion.The MPC is 0.80,the multiplier is operative,and idle resources exist at each expenditure round.Government purchases rise by $10 billion.As a result,the __________ curve shifts __________,inventory levels unexpectedly __________,business firms ___________ the quantity of goods and services they produce,and Real GDP __________ by __________.

Accepted Answer

A)  TE; downward; fall; increase; rises; $10 billion. 
B)  TP; rightward; fall; decrease; falls; $50 billion 
C)  TE; upward; fall; increase; rises; $50 billion 
D)  TE; downward; rise; increase; rises,$50 billion

Question 14

Here is a consumption function: C = C0 + MPC(Yd).If MPC is 0.91,then we know that

Accepted Answer

A)  as Yd rises by $1,Co rises by $0.91. 
B)  as Yd rises by $1,C rises by $0.91. 
C)  Yd rises by $0.91. 
D)  as C0 rises by $0.09,Yd rises by $1.

Question 15

A rise in MPC makes the total expenditures (TE)curve __________ and __________ the multiplier.

Accepted Answer

A)  steeper; raises 
B)  steeper; lowers 
C)  flatter; raises 
D)  flatter; lowers

Question 16

The answer is: 1/(1 - MPC).What is the question?

Accepted Answer

A)  What is the marginal propensity to save? 
B)  What is the efficiency wage model? 
C)  What does consumption equal if the economy is in equilibrium? 
D)  What is the multiplier? 
E)  What does disposable income equal if the economy is in equilibrium?

Question 17

Economist Brown believes that changes in aggregate demand affect only the price level,and economist Black believes that changes in aggregate demand affect only Real GDP.What does the aggregate supply (AS)curve look like for each economist?

Accepted Answer

A)  For economist Brown the AS curve is vertical and for economist Black the AS curve is horizontal. 
B)  For economist Brown the AS curve is horizontal and for economist Black the AS curve is vertical. 
C)  For economist Brown the AS curve is upward sloping and for economist Black the AS curve is downward sloping. 
D)  For economist Brown the AS curve is downward sloping and for economist Black the AS curve is upward sloping.

Question 18

Here is a consumption function: C = C0 + MPC(Yd).Which of the following is true about the consumption function?

Accepted Answer

A)  Consumption will rise if autonomous consumption or disposable income rise. 
B)  Consumption will fall if autonomous consumption falls or if the MPC rises. 
C)  Consumption will rise if autonomous consumption rises,MPC declines,or disposable income rises. 
D)  For every $1 rise in autonomous consumption,consumption will also rise by $1. 
E)  a and d

Question 19

-Refer to Exhibit 10-5.When TE is $300 billion,what will firms most likely firms do next?

Accepted Answer

A)  Firms will increase production to increase inventories to their optimum levels. 
B)  Firms will neither increase nor decrease production since the economy is in equilibrium. 
C)  Firms will cut back production to reduce inventories to their optimum levels. 
D)  It is impossible to determine what firms are likely to do based on this information.

Question 20

The part of consumption that is dependent on disposable income is called autonomous consumption.

Accepted Answer

A) True 
 B)False

Exam 10: Monopoly

What type of relationship exists between the marginal propensity to consume (MPC)and the multiplier? Explain why this relationship exists,giving a hypothetical numerical example to help support your answer.

Considering both the Keynesian and the aggregate demand-supply frameworks,if households as a group experience an increase in wealth at a given price level,then the TE curve shifts ,the AD curve shifts ,and Real GDP __.

In a recessionary gap,the implications of downward wage inflexibility are that there will be

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

On a TE-TP diagram consider a level of Real GDP at which the vertical distance to the TE line exceeds the vertical distance to the 45-degree line.This level of Real GDP is its equilibrium level,with .

Which of the following statements would Keynes have been most likely to agree with?

-Refer to Exhibit 10-6.If government purchases decrease,it follows that

Keynes assumed consumption is

-Refer to Exhibit 10-5 above.The equilibrium level of Real GDP is

-Refer to Exhibit 10-5 When TE is $700 billion,what state is the economy in?

Which of the following is a characteristic of consumption according to Keynes?

According to Keynes,aggregate demand could be too low in an economy.What does this mean?

Here is a consumption function: C = C₀ + MPC(Y_d) .If MPC is 0.91,then we know that

A rise in MPC makes the total expenditures (TE) curve and the multiplier.

The answer is: 1/(1 - MPC) .What is the question?

Economist Brown believes that changes in aggregate demand affect only the price level,and economist Black believes that changes in aggregate demand affect only Real GDP.What does the aggregate supply (AS) curve look like for each economist?

Here is a consumption function: C = C₀ + MPC(Y_d) .Which of the following is true about the consumption function?

-Refer to Exhibit 10-5.When TE is $300 billion,what will firms most likely firms do next?

The part of consumption that is dependent on disposable income is called autonomous consumption.

Exam 10: Monopoly

What type of relationship exists between the marginal propensity to consume (MPC)and the multiplier? Explain why this relationship exists,giving a hypothetical numerical example to help support your answer.

Considering both the Keynesian and the aggregate demand-supply frameworks,if households as a group experience an increase in wealth at a given price level,then the TE curve shifts __________,the AD curve shifts __________,and Real GDP __________.

In a recessionary gap,the implications of downward wage inflexibility are that there will be

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

On a TE-TP diagram consider a level of Real GDP at which the vertical distance to the TE line exceeds the vertical distance to the 45-degree line.This level of Real GDP is __________ its equilibrium level,with __________.

Which of the following statements would Keynes have been most likely to agree with?

-Refer to Exhibit 10-6.If government purchases decrease,it follows that

Keynes assumed consumption is

-Refer to Exhibit 10-5 above.The equilibrium level of Real GDP is

-Refer to Exhibit 10-5 When TE is $700 billion,what state is the economy in?

Which of the following is a characteristic of consumption according to Keynes?

According to Keynes,aggregate demand could be too low in an economy.What does this mean?

Here is a consumption function: C = C0 + MPC(Yd) .If MPC is 0.91,then we know that

A rise in MPC makes the total expenditures (TE) curve __________ and __________ the multiplier.

The answer is: 1/(1 - MPC) .What is the question?

Economist Brown believes that changes in aggregate demand affect only the price level,and economist Black believes that changes in aggregate demand affect only Real GDP.What does the aggregate supply (AS) curve look like for each economist?

Here is a consumption function: C = C0 + MPC(Yd) .Which of the following is true about the consumption function?

-Refer to Exhibit 10-5.When TE is $300 billion,what will firms most likely firms do next?

The part of consumption that is dependent on disposable income is called autonomous consumption.

Considering both the Keynesian and the aggregate demand-supply frameworks,if households as a group experience an increase in wealth at a given price level,then the TE curve shifts ,the AD curve shifts ,and Real GDP __.

On a TE-TP diagram consider a level of Real GDP at which the vertical distance to the TE line exceeds the vertical distance to the 45-degree line.This level of Real GDP is its equilibrium level,with .

Here is a consumption function: C = C₀ + MPC(Y_d) .If MPC is 0.91,then we know that

A rise in MPC makes the total expenditures (TE) curve and the multiplier.

Here is a consumption function: C = C₀ + MPC(Y_d) .Which of the following is true about the consumption function?