Question 1

In the simple Keynesian model, the economy is in equilibrium when

Accepted Answer

A)  Y = C + I and S  I. 
C)  Y = C + I and S = I. 
D)  Y = C and S = 0. 
A)  Y = C + I and S  I. 
C)  Y = C + I and S = I. 
D)  Y = C and S = 0.

Question 2

Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $30 billion. These economists would estimate that the marginal propensity to save is

Accepted Answer

A)  0.33. 
B)  0.5. 
C)  0.67. 
D)  20. 
A)  0.33. 
B)  0.5. 
C)  0.67. 
D)  20.

Question 3

If aggregate expenditures equal $7,600 and aggregate income equals $8,000, businesses will produce

Accepted Answer

A)  more, raising both employment and income. 
B)  less, lowering both employment and income. 
C)  more, raising employment and lowering income. 
D)  less, lowering employment and raising income. 
A)  more, raising both employment and income. 
B)  less, lowering both employment and income. 
C)  more, raising employment and lowering income. 
D)  less, lowering employment and raising income.

Question 4

(Table) The following table shows data on consumption at various levels of income.   Suppose investment spending is $600. If there is no government spending or net exports, the equilibrium income level is

Accepted Answer

A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $4,000. 
A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $4,000.

Question 5

Which of these is true of macroeconomic equilibrium in the simple Keynesian model?

Accepted Answer

A)  AE = Y 
B)  Y = C - S 
C)  AE + C = I 
D)  I = S + C 
A)  AE = Y 
B)  Y = C - S 
C)  AE + C = I 
D)  I = S + C

Question 6

At equilibrium, when a tax is put in place, income falls more than the tax multiplied by the multiplier since consumers pay for the tax in part by reducing their savings.

Accepted Answer

A) True 
 B)False

Question 7

The idea of the spending multiplier is that

Accepted Answer

A)  one person's spending becomes another person's income, which stimulates more spending. 
B)  people spend money on some items, such as food and toiletries, multiple times. 
C)  people tend to spend a greater amount than they originally intended. 
D)  when a person saves money in a bank, the bank lends it out to another person to be spent. 
A)  one person's spending becomes another person's income, which stimulates more spending. 
B)  people spend money on some items, such as food and toiletries, multiple times. 
C)  people tend to spend a greater amount than they originally intended. 
D)  when a person saves money in a bank, the bank lends it out to another person to be spent.

Question 8

In an economy with three sectors (household, business, and government), government spending is $5 billion, taxes are $4 billion, and investment is $4 billion. If the economy is in equilibrium, then saving is

Accepted Answer

A)  $1 billion. 
B)  $4 billion. 
C)  $5 billion. 
D)  $9 billion. 
A)  $1 billion. 
B)  $4 billion. 
C)  $5 billion. 
D)  $9 billion.

Question 9

When the economy is in equilibrium in the simple Keynesian model

Accepted Answer

A)  saving is greater than investment. 
B)  investment is greater than saving. 
C)  saving is equal to investment. 
D)  investment is equal to consumption. 
A)  saving is greater than investment. 
B)  investment is greater than saving. 
C)  saving is equal to investment. 
D)  investment is equal to consumption.

Question 10

If the marginal propensity to consume is 0.9, what is the size of the multiplier?

Accepted Answer

A)  0.1 
B)  1 
C)  9 
D)  10 
A)  0.1 
B)  1 
C)  9 
D)  10

Question 11

(Table) The following table provides partial information on an economy with a government sector and net exports.   If the economy is in equilibrium, what is the amount of investment?

Accepted Answer

In equilibrium, the sum of injections (G

Question 12

What are the determinants of investment in the simple Keynesian model? Explain each determinant briefly.

Accepted Answer

The rate of return on investment is the

Question 13

When the foreign sector, government spending, and taxes are added to the simple Keynesian model, at equilibrium, all injections must equal all withdrawals, as stated by the equation I + G + X = S + T + M.

Accepted Answer

A) True 
 B)False

Question 14

If the government always balances its budget

Accepted Answer

A)  the economy can never fall into a recession. 
B)  raising taxes has no net effect on total spending. 
C)  economic growth is spurred by showing businesses that budgets can be balanced. 
D)  the effect of an increase in government spending on aggregate expenditures is weakened. 
A)  the economy can never fall into a recession. 
B)  raising taxes has no net effect on total spending. 
C)  economic growth is spurred by showing businesses that budgets can be balanced. 
D)  the effect of an increase in government spending on aggregate expenditures is weakened.

Question 15

In the Keynesian aggregate expenditures model, prices are assumed to be fixed because

Accepted Answer

A)  unemployment is low. 
B)  resources are underutilized. 
C)  consumption and disposable income are closely related. 
D)  the government heavily intervenes in the economy. 
A)  unemployment is low. 
B)  resources are underutilized. 
C)  consumption and disposable income are closely related. 
D)  the government heavily intervenes in the economy.

Question 16

Which statement is TRUE about differences in savings rates across groups of people?

Accepted Answer

A)  Older people and higher-income people tend to save less. 
B)  Older people and lower-income people tend to save less. 
C)  Younger people and higher-income people tend to save less. 
D)  Younger people and lower-income people tend to save less. 
A)  Older people and higher-income people tend to save less. 
B)  Older people and lower-income people tend to save less. 
C)  Younger people and higher-income people tend to save less. 
D)  Younger people and lower-income people tend to save less.

In the simple Keynesian model, the economy is in equilibrium when

Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $30 billion. These economists would estimate that the marginal propensity to save is

If aggregate expenditures equal $7,600 and aggregate income equals $8,000, businesses will produce

(Table) The following table shows data on consumption at various levels of income. Suppose investment spending is $600. If there is no government spending or net exports, the equilibrium income level is

Which of these is true of macroeconomic equilibrium in the simple Keynesian model?

At equilibrium, when a tax is put in place, income falls more than the tax multiplied by the multiplier since consumers pay for the tax in part by reducing their savings.

The idea of the spending multiplier is that

In an economy with three sectors (household, business, and government), government spending is $5 billion, taxes are $4 billion, and investment is $4 billion. If the economy is in equilibrium, then saving is

When the economy is in equilibrium in the simple Keynesian model

If the marginal propensity to consume is 0.9, what is the size of the multiplier?

(Table) The following table provides partial information on an economy with a government sector and net exports. If the economy is in equilibrium, what is the amount of investment?

What are the determinants of investment in the simple Keynesian model? Explain each determinant briefly.

When the foreign sector, government spending, and taxes are added to the simple Keynesian model, at equilibrium, all injections must equal all withdrawals, as stated by the equation I + G + X = S + T + M.

If the government always balances its budget

In the Keynesian aggregate expenditures model, prices are assumed to be fixed because

Which statement is TRUE about differences in savings rates across groups of people?

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

Exam 8: Aggregate Expenditures

In the simple Keynesian model, the economy is in equilibrium when

Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $30 billion. These economists would estimate that the marginal propensity to save is

If aggregate expenditures equal $7,600 and aggregate income equals $8,000, businesses will produce

(Table) The following table shows data on consumption at various levels of income. Suppose investment spending is $600. If there is no government spending or net exports, the equilibrium income level is

Which of these is true of macroeconomic equilibrium in the simple Keynesian model?

At equilibrium, when a tax is put in place, income falls more than the tax multiplied by the multiplier since consumers pay for the tax in part by reducing their savings.

The idea of the spending multiplier is that

In an economy with three sectors (household, business, and government), government spending is $5 billion, taxes are $4 billion, and investment is $4 billion. If the economy is in equilibrium, then saving is

When the economy is in equilibrium in the simple Keynesian model

If the marginal propensity to consume is 0.9, what is the size of the multiplier?

(Table) The following table provides partial information on an economy with a government sector and net exports. If the economy is in equilibrium, what is the amount of investment?

What are the determinants of investment in the simple Keynesian model? Explain each determinant briefly.

When the foreign sector, government spending, and taxes are added to the simple Keynesian model, at equilibrium, all injections must equal all withdrawals, as stated by the equation I + G + X = S + T + M.

If the government always balances its budget

In the Keynesian aggregate expenditures model, prices are assumed to be fixed because

Which statement is TRUE about differences in savings rates across groups of people?

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