Question 1

A horizontal investment schedule assumes that investment spending is not related to current income.

Accepted Answer

A) True 
 B)False

Question 2

If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

Accepted Answer

A)  $800 
B)  $1,000 
C)  $5,000 
D)  $8,000 
A)  $800 
B)  $1,000 
C)  $5,000 
D)  $8,000

Question 3

According to Keynesian analysis, if households intend to save more, they will

Accepted Answer

A)  ultimately spend more. 
B)  cause jobs to increase because investment will increase. 
C)  ultimately cause job losses. 
D)  cause the GDP to increase because inflation will decrease. 
A)  ultimately spend more. 
B)  cause jobs to increase because investment will increase. 
C)  ultimately cause job losses. 
D)  cause the GDP to increase because inflation will decrease.

Question 4

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap.

Accepted Answer

A)  inflationary; decrease; $100 
B)  inflationary; decrease; $250 
C)  recessionary; increase; $100 
D)  recessionary; increase; $250 
A)  inflationary; decrease; $100 
B)  inflationary; decrease; $250 
C)  recessionary; increase; $100 
D)  recessionary; increase; $250

Question 5

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

Accepted Answer

A)  $100 
B)  $900 
C)  $1,000 
D)  $11,000 
A)  $100 
B)  $900 
C)  $1,000 
D)  $11,000

Question 6

(Table) The following table shows data on consumption at various levels of income.   The value of the MPC is

Accepted Answer

A)  0.25. 
B)  0.75. 
C)  0.80. 
D)  0.90. 
A)  0.25. 
B)  0.75. 
C)  0.80. 
D)  0.90.

Question 7

(Graph: Consumption) Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals

Accepted Answer

A)  0.2. 
B)  0.4. 
C)  0.5. 
D)  0.6. 
A)  0.2. 
B)  0.4. 
C)  0.5. 
D)  0.6.

Question 8

The balanced budget multiplier changes according to the values of the marginal propensity to consume and the marginal propensity to save.

Accepted Answer

A) True 
 B)False

Question 9

The multiplier for imports is larger than the multiplier for exports.

Accepted Answer

A) True 
 B)False

Question 10

If consumption rises from $500 billion to $575 billion and income rises from $600 billion to $700 billion, the marginal propensity to save is

Accepted Answer

A)  0.2. 
B)  0.25. 
C)  0.75. 
D)  1.17. 
A)  0.2. 
B)  0.25. 
C)  0.75. 
D)  1.17.

Question 11

Which statement(s) is/are TRUE regarding the paradox of thrift? I. People intend to save less but their actions actually lead to an increase in savings.
II) For the paradox of thrift to occur, investment must be positively related to income.
III) The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings.

Accepted Answer

A)  I and II only 
B)  II only 
C)  II and III only 
D)  I, II, and III 
A)  I and II only 
B)  II only 
C)  II and III only 
D)  I, II, and III

Question 12

(Table: Keynesian Equilibrium Analysis with Taxes and Net Exports) Given the data in the table, if full employment income is $1,000 while the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap.

Accepted Answer

A)  inflationary; decrease; $100 
B)  inflationary; decrease; $250 
C)  recessionary; increase; $100 
D)  recessionary; increase; $250 
A)  inflationary; decrease; $100 
B)  inflationary; decrease; $250 
C)  recessionary; increase; $100 
D)  recessionary; increase; $250

Question 13

Tax decreases do not inject money into the economy.

Accepted Answer

A) True 
 B)False

Question 14

The multiplier effect shows that a change in aggregate spending

Accepted Answer

A)  causes output to move in the opposite direction. 
B)  causes output to change even more than the change in aggregate spending. 
C)  causes output to change by less than the change in aggregate spending. 
D)  leaves output unaffected. 
A)  causes output to move in the opposite direction. 
B)  causes output to change even more than the change in aggregate spending. 
C)  causes output to change by less than the change in aggregate spending. 
D)  leaves output unaffected.

Question 15

In Keynesian macroeconomic equilibrium, there are pressures on the economy to move to a different income level.

Accepted Answer

A) True 
 B)False

Question 16

Suppose full employment real GDP is $12 trillion, current real GDP is $11 trillion, and the marginal propensity to consume is 0.8. The recessionary gap is

Accepted Answer

A)  $0.2 trillion. 
B)  $0.5 trillion. 
C)  $0.8 trillion. 
D)  $1 trillion. 
A)  $0.2 trillion. 
B)  $0.5 trillion. 
C)  $0.8 trillion. 
D)  $1 trillion.

Question 17

Expectations of a future general price increase will lead to a higher level of equilibrium expenditures.

Accepted Answer

A) True 
 B)False

Question 18

The marginal propensity to consume plus the marginal propensity to save

Accepted Answer

A)  equals 0. 
B)  equals 0.75. 
C)  equals 1. 
D)  is always a negative number. 
A)  equals 0. 
B)  equals 0.75. 
C)  equals 1. 
D)  is always a negative number.

Question 19

If consumption falls from $600 billion to $575 billion and the marginal propensity to consume is 0.8, then equilibrium income will

Accepted Answer

A)  fall by $25 billion. 
B)  fall by $125 billion. 
C)  rise by $25 billion. 
D)  rise by $125 billion. 
A)  fall by $25 billion. 
B)  fall by $125 billion. 
C)  rise by $25 billion. 
D)  rise by $125 billion.

Question 20

At equilibrium, if spending increases by $1,200 and the corresponding increase in income is $1,500, what is the multiplier?

Accepted Answer

A)  0.2 
B)  0.8 
C)  1 
D)  5 
A)  0.2 
B)  0.8 
C)  1 
D)  5

A horizontal investment schedule assumes that investment spending is not related to current income.

If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

According to Keynesian analysis, if households intend to save more, they will

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) ___ gap exists, such that a(n) _ in spending equal to ___ is needed to close the gap.

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

(Table) The following table shows data on consumption at various levels of income. The value of the MPC is

(Graph: Consumption) Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals

The balanced budget multiplier changes according to the values of the marginal propensity to consume and the marginal propensity to save.

The multiplier for imports is larger than the multiplier for exports.

If consumption rises from $500 billion to $575 billion and income rises from $600 billion to $700 billion, the marginal propensity to save is

(Table: Keynesian Equilibrium Analysis with Taxes and Net Exports) Given the data in the table, if full employment income is $1,000 while the current equilibrium is $750, a(n) ___ gap exists, such that a(n) _ in spending equal to ___ is needed to close the gap.

Tax decreases do not inject money into the economy.

The multiplier effect shows that a change in aggregate spending

In Keynesian macroeconomic equilibrium, there are pressures on the economy to move to a different income level.

Suppose full employment real GDP is $12 trillion, current real GDP is $11 trillion, and the marginal propensity to consume is 0.8. The recessionary gap is

Expectations of a future general price increase will lead to a higher level of equilibrium expenditures.

The marginal propensity to consume plus the marginal propensity to save

If consumption falls from $600 billion to $575 billion and the marginal propensity to consume is 0.8, then equilibrium income will

At equilibrium, if spending increases by $1,200 and the corresponding increase in income is $1,500, what is the multiplier?

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

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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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Exam 8: Aggregate Expenditures

A horizontal investment schedule assumes that investment spending is not related to current income.

If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

According to Keynesian analysis, if households intend to save more, they will

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap.

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

(Table) The following table shows data on consumption at various levels of income. The value of the MPC is

(Graph: Consumption) Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals

The balanced budget multiplier changes according to the values of the marginal propensity to consume and the marginal propensity to save.

The multiplier for imports is larger than the multiplier for exports.

If consumption rises from $500 billion to $575 billion and income rises from $600 billion to $700 billion, the marginal propensity to save is

(Table: Keynesian Equilibrium Analysis with Taxes and Net Exports) Given the data in the table, if full employment income is $1,000 while the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap.

Tax decreases do not inject money into the economy.

The multiplier effect shows that a change in aggregate spending

In Keynesian macroeconomic equilibrium, there are pressures on the economy to move to a different income level.

Suppose full employment real GDP is $12 trillion, current real GDP is $11 trillion, and the marginal propensity to consume is 0.8. The recessionary gap is

Expectations of a future general price increase will lead to a higher level of equilibrium expenditures.

The marginal propensity to consume plus the marginal propensity to save

If consumption falls from $600 billion to $575 billion and the marginal propensity to consume is 0.8, then equilibrium income will

At equilibrium, if spending increases by $1,200 and the corresponding increase in income is $1,500, what is the multiplier?

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

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) ___ gap exists, such that a(n) _ in spending equal to ___ is needed to close the gap.

(Table: Keynesian Equilibrium Analysis with Taxes and Net Exports) Given the data in the table, if full employment income is $1,000 while the current equilibrium is $750, a(n) ___ gap exists, such that a(n) _ in spending equal to ___ is needed to close the gap.