Question 1

Which equation is NOT true at equilibrium in the simple Keynesian model?

Accepted Answer

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

Question 2

If income is $3,000 and savings is $300, the average propensity to save is 0.01.

Accepted Answer

A) True 
 B)False

Question 3

From year to year, consumption fluctuates more than gross private domestic investment.

Accepted Answer

A) True 
 B)False

Question 4

The reason business investment is sensitive to interest rates is that

Accepted Answer

A)  interest rates are a lagging indicator, so they signal to firms the state of the economy. 
B)  most funds used for investment are borrowed, so firms incur an interest charge. 
C)  interest rates indicate how aggressive government policy is about fighting recessions. 
D)  firms charge interest on any investment they make. 
A)  interest rates are a lagging indicator, so they signal to firms the state of the economy. 
B)  most funds used for investment are borrowed, so firms incur an interest charge. 
C)  interest rates indicate how aggressive government policy is about fighting recessions. 
D)  firms charge interest on any investment they make.

Question 5

The balanced budget multiplier equals 1.

Accepted Answer

A) True 
 B)False

Question 6

(Figure: Simple Keynesian Model) Based on the figure, which graph would BEST represent the associated saving-investment?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 7

According to Keynes, as income grows

Accepted Answer

A)  consumption spending alone grows. 
B)  saving alone grows. 
C)  saving falls. 
D)  both consumption spending and saving grow. 
A)  consumption spending alone grows. 
B)  saving alone grows. 
C)  saving falls. 
D)  both consumption spending and saving grow.

Question 8

Assume that the multiplier is 10. Full employment is considered to be at a GDP level of $500 billion. Current GDP is $400 billion. According to Keynesian macroeconomics, what should the government do to achieve full employment?

Accepted Answer

A)  decrease spending by $25 billion 
B)  decrease spending by $100 billion 
C)  increase spending by $10 billion 
D)  increase spending by $25 billion 
A)  decrease spending by $25 billion 
B)  decrease spending by $100 billion 
C)  increase spending by $10 billion 
D)  increase spending by $25 billion

Question 9

A criticism of Keynesian policies is that they are the cause for significant growth in the size of the government.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9. Which statement is correct?

Accepted Answer

A)  A small increase in spending will have a more powerful effect in starting a recovery in the United States than in Japan. 
B)  The Japanese economy is not in equilibrium. 
C)  The Japanese economy is more susceptible to a recession caused by a decrease in spending. 
D)  The U.S. economy tends to overheat from too much spending. 
A)  A small increase in spending will have a more powerful effect in starting a recovery in the United States than in Japan. 
B)  The Japanese economy is not in equilibrium. 
C)  The Japanese economy is more susceptible to a recession caused by a decrease in spending. 
D)  The U.S. economy tends to overheat from too much spending.

Question 11

In the Keynesian model, the principal determinant of saving is

Accepted Answer

A)  interest rates. 
B)  income. 
C)  tax rates. 
D)  investment. 
A)  interest rates. 
B)  income. 
C)  tax rates. 
D)  investment.

Question 12

The 45-degree line represents the set of points where aggregate expenditures are equal to disposable income.

Accepted Answer

A) True 
 B)False

Question 13

In the simple Keynesian model of the private economy, which of these is assumed?

Accepted Answer

A)  The consumer price index can rise or fall. 
B)  Households and firms are savers. 
C)  The aggregate price level can change. 
D)  There is considerable slack in the economy. 
A)  The consumer price index can rise or fall. 
B)  Households and firms are savers. 
C)  The aggregate price level can change. 
D)  There is considerable slack in the economy.

Question 14

The 45-degree line in the Keynesian model represents

Accepted Answer

A)  AE = C. 
B)  AE = G. 
C)  AE = I. 
D)  AE = Y. 
A)  AE = C. 
B)  AE = G. 
C)  AE = I. 
D)  AE = Y.

Question 15

A tax decrease has more of an impact on income, employment, and output than does an equivalent increase in government spending.

Accepted Answer

A) True 
 B)False

Question 16

Keynes emphasized income as the main determinant of consumption and savings.

Accepted Answer

A) True 
 B)False

Question 17

The balanced budget multiplier means that government spending, when financed by taxes, cannot affect the economy.

Accepted Answer

A) True 
 B)False

Question 18

Classical economists believed that prices, wage rates, and interest rates were slow to change.

Accepted Answer

A) True 
 B)False

Question 19

Negative saving, by definition, is impossible.

Accepted Answer

A) True 
 B)False

Question 20

Suppose the economy has more savings than investment. In the simple Keynesian model, how would the economy achieve equilibrium, assuming that desired investment is fixed?

Accepted Answer

If there are more savings than investing

Which equation is NOT true at equilibrium in the simple Keynesian model?

If income is $3,000 and savings is $300, the average propensity to save is 0.01.

From year to year, consumption fluctuates more than gross private domestic investment.

The reason business investment is sensitive to interest rates is that

The balanced budget multiplier equals 1.

(Figure: Simple Keynesian Model) Based on the figure, which graph would BEST represent the associated saving-investment?

According to Keynes, as income grows

Assume that the multiplier is 10. Full employment is considered to be at a GDP level of $500 billion. Current GDP is $400 billion. According to Keynesian macroeconomics, what should the government do to achieve full employment?

A criticism of Keynesian policies is that they are the cause for significant growth in the size of the government.

Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9. Which statement is correct?

In the Keynesian model, the principal determinant of saving is

The 45-degree line represents the set of points where aggregate expenditures are equal to disposable income.

In the simple Keynesian model of the private economy, which of these is assumed?

The 45-degree line in the Keynesian model represents

A tax decrease has more of an impact on income, employment, and output than does an equivalent increase in government spending.

Keynes emphasized income as the main determinant of consumption and savings.

The balanced budget multiplier means that government spending, when financed by taxes, cannot affect the economy.

Classical economists believed that prices, wage rates, and interest rates were slow to change.

Negative saving, by definition, is impossible.

Suppose the economy has more savings than investment. In the simple Keynesian model, how would the economy achieve equilibrium, assuming that desired investment is fixed?

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

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Open Economy Macroeconomics

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Exam 8: Aggregate Expenditures

Which equation is NOT true at equilibrium in the simple Keynesian model?

If income is $3,000 and savings is $300, the average propensity to save is 0.01.

From year to year, consumption fluctuates more than gross private domestic investment.

The reason business investment is sensitive to interest rates is that

The balanced budget multiplier equals 1.

(Figure: Simple Keynesian Model) Based on the figure, which graph would BEST represent the associated saving-investment?

According to Keynes, as income grows

Assume that the multiplier is 10. Full employment is considered to be at a GDP level of $500 billion. Current GDP is $400 billion. According to Keynesian macroeconomics, what should the government do to achieve full employment?

A criticism of Keynesian policies is that they are the cause for significant growth in the size of the government.

Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9. Which statement is correct?

In the Keynesian model, the principal determinant of saving is

The 45-degree line represents the set of points where aggregate expenditures are equal to disposable income.

In the simple Keynesian model of the private economy, which of these is assumed?

The 45-degree line in the Keynesian model represents

A tax decrease has more of an impact on income, employment, and output than does an equivalent increase in government spending.

Keynes emphasized income as the main determinant of consumption and savings.

The balanced budget multiplier means that government spending, when financed by taxes, cannot affect the economy.

Classical economists believed that prices, wage rates, and interest rates were slow to change.

Negative saving, by definition, is impossible.

Suppose the economy has more savings than investment. In the simple Keynesian model, how would the economy achieve equilibrium, assuming that desired investment is fixed?

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