Question 1

If the marginal propensity to consume is 0.85, the value of the spending multiplier will be

Accepted Answer

A)  0.15. 
B)  1.17. 
C)  5.1. 
D)  6.67. 
A)  0.15. 
B)  1.17. 
C)  5.1. 
D)  6.67. D

Question 2

To understand the paradox of thrift, it is necessary to assume that investment is unrelated to income.

Accepted Answer

A) True 
 B)False  False

Question 3

Investment levels depend mainly on

Accepted Answer

A)  high levels of consumption in the economy. 
B)  strong government demand. 
C)  the rate of return on capital. 
D)  tax incentives. 
A)  high levels of consumption in the economy. 
B)  strong government demand. 
C)  the rate of return on capital. 
D)  tax incentives. C

Question 4

Added spending causing income to grow by a larger amount is called the multiplier effect.

Accepted Answer

A) True 
 B)False

Question 5

Which of these will NOT cause an increase in the consumption schedule?

Accepted Answer

A)  an increase in the wealth of a family 
B)  an increase in the price of gas 
C)  an increase in household debt 
D)  a decrease in one's personal taxes 
A)  an increase in the wealth of a family 
B)  an increase in the price of gas 
C)  an increase in household debt 
D)  a decrease in one's personal taxes

Question 6

The recessionary gap is equal to the GDP gap divided by the multiplier.

Accepted Answer

A) True 
 B)False

Question 7

If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is 0.75, GDP

Accepted Answer

A)  decreases by $1 billion. 
B)  increases by $1 billion. 
C)  increases by $4 billion. 
D)  remains unchanged. 
A)  decreases by $1 billion. 
B)  increases by $1 billion. 
C)  increases by $4 billion. 
D)  remains unchanged.

Question 8

How large was the unemployment rate during the Great Depression?

Accepted Answer

A)  15% 
B)  25% 
C)  32% 
D)  55% 
A)  15% 
B)  25% 
C)  32% 
D)  55%

Question 9

The full Keynesian model illustrates the importance of spending in an economy whose investment, government spending, and exports all increase income, while savings, taxes, and imports reduce it.

Accepted Answer

A) True 
 B)False

Question 10

A luxury car manufacturer is contemplating investing in its assembly plants. It learns that the probability of a recession in the next few years has increased dramatically because of adverse international events. Its investment demand will

Accepted Answer

A)  decrease because lower investment returns are expected. 
B)  increase because lower returns to investment are expected. 
C)  increase to compensate for lower expected sales. 
D)  remain unchanged because auto manufacturing is well insulated from global events. 
A)  decrease because lower investment returns are expected. 
B)  increase because lower returns to investment are expected. 
C)  increase to compensate for lower expected sales. 
D)  remain unchanged because auto manufacturing is well insulated from global events.

Question 11

Decreases in government spending _____ equilibrium income, and increases in taxes _____ equilibrium income.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase

Question 12

How did classical economists think that the self-correcting mechanism would work to bring the economy out of a recession?

Accepted Answer

Classical economists believe that busine

Question 13

Which of these illustrates the paradox of thrift?

Accepted Answer

A)  Consumer uncertainty causes people to save less; consumption rises; equilibrium income and production falls; savings decrease because income is lower. 
B)  Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decrease because income is lower. 
C)  The government encourages saving by raising interest rates; higher interest rates reduce investment spending, which lowers equilibrium income and causes production to fall; savings decrease because income is lower. 
D)  As businesses save more, interest rates fall, thus reducing household savings. 
A)  Consumer uncertainty causes people to save less; consumption rises; equilibrium income and production falls; savings decrease because income is lower. 
B)  Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decrease because income is lower. 
C)  The government encourages saving by raising interest rates; higher interest rates reduce investment spending, which lowers equilibrium income and causes production to fall; savings decrease because income is lower. 
D)  As businesses save more, interest rates fall, thus reducing household savings.

Question 14

Which group of economists believed that economic downturns were self-correcting such that the forces of supply and demand would naturally bring the economy back to equilibrium?

Accepted Answer

A)  Keynesians 
B)  classical economists 
C)  interventionists 
D)  Marxists 
A)  Keynesians 
B)  classical economists 
C)  interventionists 
D)  Marxists

Question 15

If income rises from $3,000 per month to $3,500 per month and savings increase from $200 per month to $400 per month, what is the marginal propensity to save?

Accepted Answer

A)  0.4 
B)  0.8 
C)  1.25 
D)  2.5 
A)  0.4 
B)  0.8 
C)  1.25 
D)  2.5

Question 16

Adding the investment schedule to the consumption schedule changes the marginal propensity to consume.

Accepted Answer

A) True 
 B)False

Question 17

In the Keynesian framework, increments of spending, including investments, government spending, and exports, are known as

Accepted Answer

A)  withdrawals. 
B)  injections. 
C)  leakages 
D)  infusions. 
A)  withdrawals. 
B)  injections. 
C)  leakages 
D)  infusions.

Question 18

If the stock market collapses, consumption will

Accepted Answer

A)  not be affected. 
B)  increase because stocks can now be purchased cheaply. 
C)  decrease because people feel that they have less money. 
D)  increase by a small amount. 
A)  not be affected. 
B)  increase because stocks can now be purchased cheaply. 
C)  decrease because people feel that they have less money. 
D)  increase by a small amount.

Question 19

The slope of the consumption function is equal to the multiplier.

Accepted Answer

A) True 
 B)False

Question 20

The formula for the simple spending multiplier is

Accepted Answer

A)  1/(1 - MP
C) . 
B)  MPC + MPS. 
C)  1/MPC. 
D)  1/(MPC + MPS). 
A)  1/(1 - MP
C) . 
B)  MPC + MPS. 
C)  1/MPC. 
D)  1/(MPC + MPS).

If the marginal propensity to consume is 0.85, the value of the spending multiplier will be

To understand the paradox of thrift, it is necessary to assume that investment is unrelated to income.

Investment levels depend mainly on

Added spending causing income to grow by a larger amount is called the multiplier effect.

Which of these will NOT cause an increase in the consumption schedule?

The recessionary gap is equal to the GDP gap divided by the multiplier.

If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is 0.75, GDP

How large was the unemployment rate during the Great Depression?

The full Keynesian model illustrates the importance of spending in an economy whose investment, government spending, and exports all increase income, while savings, taxes, and imports reduce it.

A luxury car manufacturer is contemplating investing in its assembly plants. It learns that the probability of a recession in the next few years has increased dramatically because of adverse international events. Its investment demand will

Decreases in government spending _ equilibrium income, and increases in taxes _ equilibrium income.

How did classical economists think that the self-correcting mechanism would work to bring the economy out of a recession?

Which of these illustrates the paradox of thrift?

Which group of economists believed that economic downturns were self-correcting such that the forces of supply and demand would naturally bring the economy back to equilibrium?

If income rises from $3,000 per month to $3,500 per month and savings increase from $200 per month to $400 per month, what is the marginal propensity to save?

Adding the investment schedule to the consumption schedule changes the marginal propensity to consume.

In the Keynesian framework, increments of spending, including investments, government spending, and exports, are known as

If the stock market collapses, consumption will

The slope of the consumption function is equal to the multiplier.

The formula for the simple spending multiplier is

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Demand and Supply

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Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

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Open Economy Macroeconomics

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Exam 8: Aggregate Expenditures

If the marginal propensity to consume is 0.85, the value of the spending multiplier will be

To understand the paradox of thrift, it is necessary to assume that investment is unrelated to income.

Investment levels depend mainly on

Added spending causing income to grow by a larger amount is called the multiplier effect.

Which of these will NOT cause an increase in the consumption schedule?

The recessionary gap is equal to the GDP gap divided by the multiplier.

If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is 0.75, GDP

How large was the unemployment rate during the Great Depression?

The full Keynesian model illustrates the importance of spending in an economy whose investment, government spending, and exports all increase income, while savings, taxes, and imports reduce it.

A luxury car manufacturer is contemplating investing in its assembly plants. It learns that the probability of a recession in the next few years has increased dramatically because of adverse international events. Its investment demand will

Decreases in government spending _____ equilibrium income, and increases in taxes _____ equilibrium income.

How did classical economists think that the self-correcting mechanism would work to bring the economy out of a recession?

Which of these illustrates the paradox of thrift?

Which group of economists believed that economic downturns were self-correcting such that the forces of supply and demand would naturally bring the economy back to equilibrium?

If income rises from $3,000 per month to $3,500 per month and savings increase from $200 per month to $400 per month, what is the marginal propensity to save?

Adding the investment schedule to the consumption schedule changes the marginal propensity to consume.

In the Keynesian framework, increments of spending, including investments, government spending, and exports, are known as

If the stock market collapses, consumption will

The slope of the consumption function is equal to the multiplier.

The formula for the simple spending multiplier is

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

Filters

Decreases in government spending _ equilibrium income, and increases in taxes _ equilibrium income.