Question 1

John Maynard Keynes advised U.S. President Franklin Roosevelt to

Accepted Answer

A)  balance the budget in order to reduce the interest rate. 
B)  pass the Treaty of Versailles in order to eliminate Germany as a competitor. 
C)  increase government spending in order to stimulate the economy. 
D)  increase the interest rate to increase savings so investment would be stimulated. 
A)  balance the budget in order to reduce the interest rate. 
B)  pass the Treaty of Versailles in order to eliminate Germany as a competitor. 
C)  increase government spending in order to stimulate the economy. 
D)  increase the interest rate to increase savings so investment would be stimulated.

Question 2

If disposable income is $3,000 and saving is $1,200, how much is consumption?

Accepted Answer

A)  -$1,200 
B)  $1,800 
C)  $2,100 
D)  $4,200 
A)  -$1,200 
B)  $1,800 
C)  $2,100 
D)  $4,200

Question 3

The expenditures approach to calculating GDP includes measures of consumer spending, business investment spending, government spending, and net foreign spending.

Accepted Answer

A) True 
 B)False

Question 4

When household debt levels rise

Accepted Answer

A)  the ability to earn more credit rises. 
B)  families are less able to spend in the current period. 
C)  investment levels rise. 
D)  tax payments are higher. 
A)  the ability to earn more credit rises. 
B)  families are less able to spend in the current period. 
C)  investment levels rise. 
D)  tax payments are higher.

Question 5

Which statement about the multiplier is correct?

Accepted Answer

A)  The spending multiplier can work to increase or to decrease equilibrium GDP. 
B)  The spending multiplier exists only during economic expansions. 
C)  The size of the spending multiplier is dictated by the amount of government spending. 
D)  The value of the spending multiplier is the inverse of the marginal propensity to consume. 
A)  The spending multiplier can work to increase or to decrease equilibrium GDP. 
B)  The spending multiplier exists only during economic expansions. 
C)  The size of the spending multiplier is dictated by the amount of government spending. 
D)  The value of the spending multiplier is the inverse of the marginal propensity to consume.

Question 6

The _____ is the change in consumption associated with a change in income.

Accepted Answer

A)  average propensity to consume 
B)  marginal propensity to consume 
C)  average propensity to save 
D)  marginal propensity to save 
A)  average propensity to consume 
B)  marginal propensity to consume 
C)  average propensity to save 
D)  marginal propensity to save

Question 7

Suppose the government is mandated by law to have a balanced budget. The marginal propensity to consume is 0.9. The government raises both taxes and spending by $10 billion. According to the notion of the balanced budget multiplier

Accepted Answer

A)  income falls by $10 billion, because taxes reduce spending by $100 billion and government spending raises total spending by $90 billion. 
B)  income rises by $10 billion, because taxes reduce spending by $90 billion and government spending raises total spending by $100 billion. 
C)  there is no effect on the economy, because the tax and spending increases cancel each other out. 
D)  income rises by $.9 billion, because taxes reduce spending by $8.1 billion and government spending raises total spending by $9 billion. 
A)  income falls by $10 billion, because taxes reduce spending by $100 billion and government spending raises total spending by $90 billion. 
B)  income rises by $10 billion, because taxes reduce spending by $90 billion and government spending raises total spending by $100 billion. 
C)  there is no effect on the economy, because the tax and spending increases cancel each other out. 
D)  income rises by $.9 billion, because taxes reduce spending by $8.1 billion and government spending raises total spending by $9 billion.

Question 8

Investment is defined as spending by

Accepted Answer

A)  investors in the stock market. 
B)  investors in the bond market. 
C)  business that adds to the productive capacity of the economy. 
D)  households on home maintenance. 
A)  investors in the stock market. 
B)  investors in the bond market. 
C)  business that adds to the productive capacity of the economy. 
D)  households on home maintenance.

Question 9

One implication of a straight-line aggregate expenditures curve is that the

Accepted Answer

A)  marginal propensity to consume is constant. 
B)  average propensity to consume is constant. 
C)  average propensity to save is constant. 
D)  marginal propensity to save increases as income increases. 
A)  marginal propensity to consume is constant. 
B)  average propensity to consume is constant. 
C)  average propensity to save is constant. 
D)  marginal propensity to save increases as income increases.

Question 10

(Table) The table that follows shows the data for Keynesland.   Plot the data on an aggregate expenditures schedule. Suppose a housing boom causes consumption spending to rise by $100 at all levels. Graph the new aggregate expenditures schedule. By how much would equilibrium income rise? What is the value of the multiplier?

Accepted Answer

The plot of the aggregate expenditures s

Question 11

What are injections and withdrawals in the simple Keynesian model? Why must they be equal at equilibrium?

Accepted Answer

The simple Keynesian model of aggregate

Question 12

From 2008 to 2009, the falling stock market reduced the wealth of U.S. households, causing the United States to

Accepted Answer

A)  move down along its consumption schedule. 
B)  shift its consumption schedule downward. 
C)  move up along its consumption schedule. 
D)  shift its consumption schedule upward. 
A)  move down along its consumption schedule. 
B)  shift its consumption schedule downward. 
C)  move up along its consumption schedule. 
D)  shift its consumption schedule upward.

Question 13

(Figure: Consumption Spending) At point A in the graph provided

Accepted Answer

A)  saving is $20. 
B)  consumption is zero. 
C)  saving is zero. 
D)  consumption exceeds income by $20. 
A)  saving is $20. 
B)  consumption is zero. 
C)  saving is zero. 
D)  consumption exceeds income by $20.

Question 14

As income increases, consumption

Accepted Answer

A)  increases at a slower rate. 
B)  increases faster. 
C)  decreases at a slower rate. 
D)  decreases faster. 
A)  increases at a slower rate. 
B)  increases faster. 
C)  decreases at a slower rate. 
D)  decreases faster.

Question 15

If the marginal propensity to consume is 0.65, the spending multiplier is

Accepted Answer

A)  1.33. 
B)  1.54. 
C)  2.86. 
D)  4. 
A)  1.33. 
B)  1.54. 
C)  2.86. 
D)  4.

Question 16

In the full aggregate expenditures model with net exports included

Accepted Answer

A)  C + G + X = S + T + M. 
B)  C + G + M = S + T + X. 
C)  I + G + M = S + T + X. 
D)  I + G + X = S + T + M. 
A)  C + G + X = S + T + M. 
B)  C + G + M = S + T + X. 
C)  I + G + M = S + T + X. 
D)  I + G + X = S + T + M.

Question 17

When taxes are reduced, disposable income _____ and consumption spending _____ by the marginal propensity to consume multiplied by the change in disposable income.

Accepted Answer

A)  rises; rises 
B)  falls; falls 
C)  rises; falls 
D)  falls; rises 
A)  rises; rises 
B)  falls; falls 
C)  rises; falls 
D)  falls; rises

Question 18

If aggregate expenditures are less than current output

Accepted Answer

A)  businesses will cut back on output. 
B)  businesses will produce more. 
C)  employment will rise. 
D)  inflation results. 
A)  businesses will cut back on output. 
B)  businesses will produce more. 
C)  employment will rise. 
D)  inflation results.

Question 19

Saving is equal to

Accepted Answer

A)  disposable income minus consumption. 
B)  consumption minus disposable income. 
C)  investment minus government taxes. 
D)  government taxes minus investment. 
A)  disposable income minus consumption. 
B)  consumption minus disposable income. 
C)  investment minus government taxes. 
D)  government taxes minus investment.

Question 20

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income

Accepted Answer

A)  decreases by $5 billion. 
B)  decreases by $10 billion. 
C)  increases by $2.5 billion. 
D)  increases by $10 billion. 
A)  decreases by $5 billion. 
B)  decreases by $10 billion. 
C)  increases by $2.5 billion. 
D)  increases by $10 billion.

John Maynard Keynes advised U.S. President Franklin Roosevelt to

If disposable income is $3,000 and saving is $1,200, how much is consumption?

The expenditures approach to calculating GDP includes measures of consumer spending, business investment spending, government spending, and net foreign spending.

When household debt levels rise

Which statement about the multiplier is correct?

The _____ is the change in consumption associated with a change in income.

Suppose the government is mandated by law to have a balanced budget. The marginal propensity to consume is 0.9. The government raises both taxes and spending by $10 billion. According to the notion of the balanced budget multiplier

Investment is defined as spending by

One implication of a straight-line aggregate expenditures curve is that the

What are injections and withdrawals in the simple Keynesian model? Why must they be equal at equilibrium?

From 2008 to 2009, the falling stock market reduced the wealth of U.S. households, causing the United States to

(Figure: Consumption Spending) At point A in the graph provided

As income increases, consumption

If the marginal propensity to consume is 0.65, the spending multiplier is

In the full aggregate expenditures model with net exports included

When taxes are reduced, disposable income _ and consumption spending _ by the marginal propensity to consume multiplied by the change in disposable income.

If aggregate expenditures are less than current output

Saving is equal to

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income

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

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Exam 8: Aggregate Expenditures

John Maynard Keynes advised U.S. President Franklin Roosevelt to

If disposable income is $3,000 and saving is $1,200, how much is consumption?

The expenditures approach to calculating GDP includes measures of consumer spending, business investment spending, government spending, and net foreign spending.

When household debt levels rise

Which statement about the multiplier is correct?

The _____ is the change in consumption associated with a change in income.

Suppose the government is mandated by law to have a balanced budget. The marginal propensity to consume is 0.9. The government raises both taxes and spending by $10 billion. According to the notion of the balanced budget multiplier

Investment is defined as spending by

One implication of a straight-line aggregate expenditures curve is that the

What are injections and withdrawals in the simple Keynesian model? Why must they be equal at equilibrium?

From 2008 to 2009, the falling stock market reduced the wealth of U.S. households, causing the United States to

(Figure: Consumption Spending) At point A in the graph provided

As income increases, consumption

If the marginal propensity to consume is 0.65, the spending multiplier is

In the full aggregate expenditures model with net exports included

When taxes are reduced, disposable income _____ and consumption spending _____ by the marginal propensity to consume multiplied by the change in disposable income.

If aggregate expenditures are less than current output

Saving is equal to

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income

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

When taxes are reduced, disposable income _ and consumption spending _ by the marginal propensity to consume multiplied by the change in disposable income.