Question 1

Exhibit 10-8
  
-Refer to Exhibit 10-8.When disposable income equals $500,saving equals

Accepted Answer

A)  $125. 
B)  $500. 
C)  $175. 
D)  -$175. 
A)  $125. 
B)  $500. 
C)  $175. 
D)  -$175.

Question 2

Most economists think that the Keynesian position is that

Accepted Answer

A)  the wage rate will never fall and the price level will never adjust downward if the economy is in a recessionary gap. 
B)  the time required before wages and prices adjust downward is short enough for the economy to be called self-regulating. 
C)  the time required before wages and prices adjust downward is long enough for the economy to exist in a recessionary gap for a long time. 
D)  the time required before wages and prices adjust downward if the economy is in a recessionary gap is rather long, but short enough for the economy to be considered self-regulating. 
A)  the wage rate will never fall and the price level will never adjust downward if the economy is in a recessionary gap. 
B)  the time required before wages and prices adjust downward is short enough for the economy to be called self-regulating. 
C)  the time required before wages and prices adjust downward is long enough for the economy to exist in a recessionary gap for a long time. 
D)  the time required before wages and prices adjust downward if the economy is in a recessionary gap is rather long, but short enough for the economy to be considered self-regulating.

Question 3

Keynes believed that

Accepted Answer

A)  Say's law would hold in a laissez-faire economy. 
B)  the economy would always be near or on its production possibilities frontier. 
C)  wages and prices are often inflexible in the downward direction. 
D)  the equilibrium level of output will always be at the full-employment level of output. 
A)  Say's law would hold in a laissez-faire economy. 
B)  the economy would always be near or on its production possibilities frontier. 
C)  wages and prices are often inflexible in the downward direction. 
D)  the equilibrium level of output will always be at the full-employment level of output.

Question 4

A change in autonomous spending leads to a greater change in Real GDP through the multiplier process.

Accepted Answer

A) True 
 B)False

Question 5

In Keynes' view,labor unions would resist wage cuts,but individual employees would go along with wage cuts initiated by his/her employer.

Accepted Answer

A) True 
 B)False

Question 6

Keynes believed that saving is

Accepted Answer

A)  more responsive to changes in income than to changes in interest rates. 
B)  less responsive to changes in income than to changes in interest rates. 
C)  equally responsive to changes in income and to changes in interest rates. 
D)  dependent only on changes in interest rates. 
A)  more responsive to changes in income than to changes in interest rates. 
B)  less responsive to changes in income than to changes in interest rates. 
C)  equally responsive to changes in income and to changes in interest rates. 
D)  dependent only on changes in interest rates.

Question 7

If people buy more than has been produced,

Accepted Answer

A)  the economy is in equilibrium. 
B)  total expenditures are greater than total production. 
C)  there will be an increase in inventory. 
D)  there will be a decrease in total output. 
A)  the economy is in equilibrium. 
B)  total expenditures are greater than total production. 
C)  there will be an increase in inventory. 
D)  there will be a decrease in total output.

Question 8

John Maynard Keynes drew many economists ______________ the classical view. The classical view held that a market economy __________ regulate itself to avoid periods of excessive unemployment.

Accepted Answer

A)  toward; can 
B)  toward; cannot 
C)  away from; can 
D)  away from; cannot 
A)  toward; can 
B)  toward; cannot 
C)  away from; can 
D)  away from; cannot

Question 9

Suppose the multiplier is 4.Ceteris paribus,a change in autonomous spending will change Real GDP more if the aggregate supply curve is __________ than if it is __________.

Accepted Answer

A)  horizontal; upward sloping 
B)  upward sloping; horizontal 
C)  upward sloping; downward sloping 
D)  downward sloping; upward sloping 
E)  There is not enough information to answer the question. 
A)  horizontal; upward sloping 
B)  upward sloping; horizontal 
C)  upward sloping; downward sloping 
D)  downward sloping; upward sloping 
E)  There is not enough information to answer the question.

Question 10

The economy is in equilibrium,TP = TE,and Real GDP is $4,000 billion.The MPC is 0.70,the multiplier is operative,and idle resources exist at each expenditure round.Government purchases fall by $17 billion.As a result,the TE curve shifts __________,inventory levels unexpectedly __________,business firms __________ the quantity of goods and services they produce,and Real GDP __________ by __________.

Accepted Answer

A)  downward; rise; decrease; falls; approximately $56.7 billion 
B)  downward; fall; increase; falls; approximately $56.7 billion 
C)  upward; rise; decrease; falls; $17 billion 
D)  upward; fall; decrease; rises; $17 billion 
E)  downward; rise; decrease; falls; approximately $11.9 billion 
A)  downward; rise; decrease; falls; approximately $56.7 billion 
B)  downward; fall; increase; falls; approximately $56.7 billion 
C)  upward; rise; decrease; falls; $17 billion 
D)  upward; fall; decrease; rises; $17 billion 
E)  downward; rise; decrease; falls; approximately $11.9 billion

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 
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

The economy is in equilibrium,TP = TE.Then,net exports fall.As a result,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of good and services they produce.

Accepted Answer

A)  TE; upward; rise; increase 
B)  TP; rightward; rise; decrease 
C)  TE; downward; rise; decrease 
D)  TE; downward; rise; increase 
E)  none of the above 
A)  TE; upward; rise; increase 
B)  TP; rightward; rise; decrease 
C)  TE; downward; rise; decrease 
D)  TE; downward; rise; increase 
E)  none of the above

Question 13

Exhibit 10-7
  
-Refer to Exhibit 10-7. If autonomous consumption increases,which of the following is possible?

Accepted Answer

A)  The AD curve will shift rightward from AD1 to AD2, the price level will remain constant, and Real GDP will rise. 
B)  The AD curve will shift leftward from AD4 to AD3, the price level will fall, and Real GDP will remain constant. 
C)  The AD curve will shift rightward from AD3 to AD4, the price level will remain constant, and Real GDP will rise. 
D)  The AD curve will shift rightward from AD1 to AD2, the price level will rise, and Real GDP will remain constant. 
A)  The AD curve will shift rightward from AD1 to AD2, the price level will remain constant, and Real GDP will rise. 
B)  The AD curve will shift leftward from AD4 to AD3, the price level will fall, and Real GDP will remain constant. 
C)  The AD curve will shift rightward from AD3 to AD4, the price level will remain constant, and Real GDP will rise. 
D)  The AD curve will shift rightward from AD1 to AD2, the price level will rise, and Real GDP will remain constant.

Question 14

Exhibit 10-7
  
-In the TE-TP framework,total production

Accepted Answer

A)  always equals total expenditures. 
B)  equals Real GDP. 
C)  is always greater than total expenditures. 
D)  is always less than total expenditures. 
A)  always equals total expenditures. 
B)  equals Real GDP. 
C)  is always greater than total expenditures. 
D)  is always less than total expenditures.

Question 15

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 16

Here is a consumption function: C = C0 + MPC(Yd).If C0 = $200,then we know that

Accepted Answer

A)  if Yd is zero, C will be $200. 
B)  when Yd rises, C rises by $200. 
C)  when Yd falls, C falls by MPC times C0. 
D)  C will always equal C0. 
A)  if Yd is zero, C will be $200. 
B)  when Yd rises, C rises by $200. 
C)  when Yd falls, C falls by MPC times C0. 
D)  C will always equal C0.

Question 17

Exhibit 10-6
  
-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. 
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 18

Who would be most likely to agree that "People do not always save more as interest rates rise"?

Accepted Answer

A)  a classical economist 
B)  John Maynard Keynes 
C)  an efficiency wage theorist 
D)  a and b 
E)  a, b, and c 
A)  a classical economist 
B)  John Maynard Keynes 
C)  an efficiency wage theorist 
D)  a and b 
E)  a, b, and c

Question 19

A consumption function is a statement that shows the relationship between interest rates and consumption.

Accepted Answer

A) True 
 B)False

Question 20

In a simple Keynesian model,the aggregate supply curve is upward sloping.

Accepted Answer

A) True 
 B)False

Exam 10: Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Exhibit 10-8 -Refer to Exhibit 10-8.When disposable income equals $500,saving equals

Most economists think that the Keynesian position is that

Keynes believed that

A change in autonomous spending leads to a greater change in Real GDP through the multiplier process.

In Keynes' view,labor unions would resist wage cuts,but individual employees would go along with wage cuts initiated by his/her employer.

Keynes believed that saving is

If people buy more than has been produced,

John Maynard Keynes drew many economists ______________ the classical view. The classical view held that a market economy __________ regulate itself to avoid periods of excessive unemployment.

Suppose the multiplier is 4.Ceteris paribus,a change in autonomous spending will change Real GDP more if the aggregate supply curve is __________ than if it is __________.

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

The economy is in equilibrium,TP = TE.Then,net exports fall.As a result,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of good and services they produce.

Exhibit 10-7 -Refer to Exhibit 10-7. If autonomous consumption increases,which of the following is possible?

Exhibit 10-7 -In the TE-TP framework,total production

If consumption is greater than disposable income,it follows that

Here is a consumption function: C = C0 + MPC(Yd).If C0 = $200,then we know that

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

Who would be most likely to agree that "People do not always save more as interest rates rise"?

A consumption function is a statement that shows the relationship between interest rates and consumption.

In a simple Keynesian model,the aggregate supply curve is upward sloping.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

John Maynard Keynes drew many economists ____ the classical view. The classical view held that a market economy regulate itself to avoid periods of excessive unemployment.

Suppose the multiplier is 4.Ceteris paribus,a change in autonomous spending will change Real GDP more if the aggregate supply curve is than if it is .

The economy is in equilibrium,TP = TE.Then,net exports fall.As a result,the curve shifts ,inventory levels unexpectedly ,and business firms the quantity of good and services they produce.

Here is a consumption function: C = C₀ + MPC(Y_d).If C₀ = $200,then we know that