Question 1

If the marginal propensity to consume is 0.8 and the government reduces taxes by $5 billion, equilibrium income will

Accepted Answer

A)  fall by $20 billion. 
B)  rise by $20 billion. 
C)  fall by $25 billion. 
D)  rise by $25 billion. 
A)  fall by $20 billion. 
B)  rise by $20 billion. 
C)  fall by $25 billion. 
D)  rise by $25 billion.

Question 2

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the marginal propensity to consume is

Accepted Answer

A)  0.25. 
B)  0.75. 
C)  0.8. 
D)  0.9. 
A)  0.25. 
B)  0.75. 
C)  0.8. 
D)  0.9.

Question 3

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the average propensity to consume at equilibrium is

Accepted Answer

A)  0.875. 
B)  0.917. 
C)  1.00. 
D)  1.25. 
A)  0.875. 
B)  0.917. 
C)  1.00. 
D)  1.25.

Question 4

Increases in taxes result in increased consumption and savings.

Accepted Answer

A) True 
 B)False

Question 5

Analyze consumption by comparing the average propensity to consume (APC) with the marginal propensity to consume (MPC) using numerical examples. Is either APC or MPC consistent with Keynes's psychological law?

Accepted Answer

The APC is the percentage of income that

Question 6

When withdrawals equal injections, the economy

Accepted Answer

A)  is losing money. 
B)  still has to adjust to bring both down to zero. 
C)  is in a recession. 
D)  is in equilibrium. 
A)  is losing money. 
B)  still has to adjust to bring both down to zero. 
C)  is in a recession. 
D)  is in equilibrium.

Question 7

In the simple Keynesian model with no government or foreign sectors, assume that the economy is in equilibrium at an output level of $2 billion with a marginal propensity to consume of 0.9. If investment spending decreases by $0.05 billion, what is the new equilibrium output level?

Accepted Answer

A)  $1.5 billion 
B)  $1.9 billion 
C)  $1.95 billion 
D)  $2.5 billion 
A)  $1.5 billion 
B)  $1.9 billion 
C)  $1.95 billion 
D)  $2.5 billion

Question 8

Assume that the MPC is 0.75, full employment is considered to be at a GDP level of $500 billion, and the GDP is $600 billion. What should the government do to achieve full employment?

Accepted Answer

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

Question 9

The paradox of thrift states that if everyone tries to save more, in total, they might save less.

Accepted Answer

A) True 
 B)False

Question 10

Activities that remove spending from the economy are called

Accepted Answer

A)  negative spending. 
B)  withdrawals. 
C)  injections. 
D)  reverse spending. 
A)  negative spending. 
B)  withdrawals. 
C)  injections. 
D)  reverse spending.

Question 11

(Graph: Consumption) Based on the information provided in the graph, at an income level of $300, savings equals _____, the MPC equals _____, and the APC equals _____.

Accepted Answer

A)  -$120; 0.4; -0.7 
B)  -$80; 0.6; 1.27 
C)  $80; 0.6; -0.27 
D)  $300; 0.4; 0.5 
A)  -$120; 0.4; -0.7 
B)  -$80; 0.6; 1.27 
C)  $80; 0.6; -0.27 
D)  $300; 0.4; 0.5

Question 12

If the marginal propensity to consume increases, the spending multiplier _____ and the balanced budget multiplier _____.

Accepted Answer

A)  increases; increases 
B)  decreases; decreases 
C)  increases; remains the same 
D)  decreases; remains the same 
A)  increases; increases 
B)  decreases; decreases 
C)  increases; remains the same 
D)  decreases; remains the same

Question 13

If Tanner believes that his income will soon rise, he will be more inclined to purchase something he wants and go into debt.

Accepted Answer

A) True 
 B)False

Question 14

John Maynard Keynes focused on _____ to explain how the economy reaches short-term equilibrium employment, output, and income.

Accepted Answer

A)  aggregate spending 
B)  investment 
C)  interest rates 
D)  property rights 
A)  aggregate spending 
B)  investment 
C)  interest rates 
D)  property rights

Question 15

(Figure: Aggregate Expenditures) The figure shows the aggregate expenditures for an economy. Which is the proper sequence of events if income was originally at $100?

Accepted Answer

A)  Total spending exceeds income, firms reduce production, workers are laid off, and incomes fall until equilibrium is reached. 
B)  Total income exceeds spending, firms expand production, workers are hired, and incomes rise until equilibrium is reached. 
C)  Total spending exceeds income, firms expand production, workers are hired, and incomes rise until equilibrium is reached. 
D)  Total income exceeds spending, firms reduce production, workers are laid off, and incomes fall until equilibrium is reached. 
A)  Total spending exceeds income, firms reduce production, workers are laid off, and incomes fall until equilibrium is reached. 
B)  Total income exceeds spending, firms expand production, workers are hired, and incomes rise until equilibrium is reached. 
C)  Total spending exceeds income, firms expand production, workers are hired, and incomes rise until equilibrium is reached. 
D)  Total income exceeds spending, firms reduce production, workers are laid off, and incomes fall until equilibrium is reached.

Question 16

Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $40 billion. These economists would estimate that the marginal propensity to save is

Accepted Answer

A)  0.25. 
B)  0.75. 
C)  4. 
D)  30. 
A)  0.25. 
B)  0.75. 
C)  4. 
D)  30.

Question 17

Explain why the balanced budget multiplier is equal to 1, using a numerical example.

Accepted Answer

Since the federal budget consists of exp

Question 18

Aggregate expenditures are equal to consumption plus business investment in the simple private sector model.

Accepted Answer

A) True 
 B)False

Question 19

Where does equilibrium occur in the simple Keynesian model?

Accepted Answer

In the simple Keynesian model,

Question 20

Increases 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

If the marginal propensity to consume is 0.8 and the government reduces taxes by $5 billion, equilibrium income will

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the marginal propensity to consume is

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the average propensity to consume at equilibrium is

Increases in taxes result in increased consumption and savings.

Analyze consumption by comparing the average propensity to consume (APC) with the marginal propensity to consume (MPC) using numerical examples. Is either APC or MPC consistent with Keynes's psychological law?

When withdrawals equal injections, the economy

In the simple Keynesian model with no government or foreign sectors, assume that the economy is in equilibrium at an output level of $2 billion with a marginal propensity to consume of 0.9. If investment spending decreases by $0.05 billion, what is the new equilibrium output level?

Assume that the MPC is 0.75, full employment is considered to be at a GDP level of $500 billion, and the GDP is $600 billion. What should the government do to achieve full employment?

The paradox of thrift states that if everyone tries to save more, in total, they might save less.

Activities that remove spending from the economy are called

(Graph: Consumption) Based on the information provided in the graph, at an income level of $300, savings equals ___, the MPC equals _, and the APC equals ___.

If the marginal propensity to consume increases, the spending multiplier _ and the balanced budget multiplier _.

If Tanner believes that his income will soon rise, he will be more inclined to purchase something he wants and go into debt.

John Maynard Keynes focused on _____ to explain how the economy reaches short-term equilibrium employment, output, and income.

(Figure: Aggregate Expenditures) The figure shows the aggregate expenditures for an economy. Which is the proper sequence of events if income was originally at $100?

Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $40 billion. These economists would estimate that the marginal propensity to save is

Explain why the balanced budget multiplier is equal to 1, using a numerical example.

Aggregate expenditures are equal to consumption plus business investment in the simple private sector model.

Where does equilibrium occur in the simple Keynesian model?

Increases in government spending _ equilibrium income, and increases in taxes _ 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

Exam 8: Aggregate Expenditures

If the marginal propensity to consume is 0.8 and the government reduces taxes by $5 billion, equilibrium income will

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the marginal propensity to consume is

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the average propensity to consume at equilibrium is

Increases in taxes result in increased consumption and savings.

Analyze consumption by comparing the average propensity to consume (APC) with the marginal propensity to consume (MPC) using numerical examples. Is either APC or MPC consistent with Keynes's psychological law?

When withdrawals equal injections, the economy

In the simple Keynesian model with no government or foreign sectors, assume that the economy is in equilibrium at an output level of $2 billion with a marginal propensity to consume of 0.9. If investment spending decreases by $0.05 billion, what is the new equilibrium output level?

Assume that the MPC is 0.75, full employment is considered to be at a GDP level of $500 billion, and the GDP is $600 billion. What should the government do to achieve full employment?

The paradox of thrift states that if everyone tries to save more, in total, they might save less.

Activities that remove spending from the economy are called

(Graph: Consumption) Based on the information provided in the graph, at an income level of $300, savings equals _____, the MPC equals _____, and the APC equals _____.

If the marginal propensity to consume increases, the spending multiplier _____ and the balanced budget multiplier _____.

If Tanner believes that his income will soon rise, he will be more inclined to purchase something he wants and go into debt.

John Maynard Keynes focused on _____ to explain how the economy reaches short-term equilibrium employment, output, and income.

(Figure: Aggregate Expenditures) The figure shows the aggregate expenditures for an economy. Which is the proper sequence of events if income was originally at $100?

Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $40 billion. These economists would estimate that the marginal propensity to save is

Explain why the balanced budget multiplier is equal to 1, using a numerical example.

Aggregate expenditures are equal to consumption plus business investment in the simple private sector model.

Where does equilibrium occur in the simple Keynesian model?

Increases in government spending _____ equilibrium income, and increases in taxes _____ 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

(Graph: Consumption) Based on the information provided in the graph, at an income level of $300, savings equals ___, the MPC equals _, and the APC equals ___.

If the marginal propensity to consume increases, the spending multiplier _ and the balanced budget multiplier _.

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