Question 1

Classical economists believed that the forces of supply and demand in the market would keep the economy at full employment.

Accepted Answer

A) True 
 B)False

Question 2

One of the determinants of investment is the current level of capital goods.

Accepted Answer

A) True 
 B)False

Question 3

(Figure: Simple Keynesian Model) In the figure, equilibrium savings equals _____ when investment is at AE = C + I0, and _____ when investment is at AE = C + I1.

Accepted Answer

A)  -$50; -$200 
B)  $0; $0 
C)  $50; $150 
D)  $100; $200 
A)  -$50; -$200 
B)  $0; $0 
C)  $50; $150 
D)  $100; $200

Question 4

Income rises when desired investment is

Accepted Answer

A)  greater than desired savings. 
B)  less than desired savings. 
C)  equal to desired savings. 
D)  less than required investment. 
A)  greater than desired savings. 
B)  less than desired savings. 
C)  equal to desired savings. 
D)  less than required investment.

Question 5

Which expenditure component decreased the most between 1929 and 1933?

Accepted Answer

A)  consumption 
B)  government spending 
C)  investment 
D)  net exports 
A)  consumption 
B)  government spending 
C)  investment 
D)  net exports

Question 6

Saving is zero when the economy is in macroeconomic equilibrium in the simple Keynesian model.

Accepted Answer

A) True 
 B)False

Question 7

The simple Keynesian model ignores

Accepted Answer

A)  the government. 
B)  the government and the foreign sector. 
C)  households. 
D)  households and businesses. 
A)  the government. 
B)  the government and the foreign sector. 
C)  households. 
D)  households and businesses.

Question 8

Which statement(s) is/are TRUE about Keynes's simple model of the economy? I. The aggregate price level is fixed.
II) All savings are considered to be personal savings.
III) There is considerable slack in the economy.

Accepted Answer

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

Question 9

Disposable income equals income

Accepted Answer

A)  minus government spending. 
B)  minus taxes. 
C)  plus government spending. 
D)  plus taxes. 
A)  minus government spending. 
B)  minus taxes. 
C)  plus government spending. 
D)  plus taxes.

Question 10

In the Keynesian model, desired investment equals actual investment when the economy is in equilibrium.

Accepted Answer

A) True 
 B)False

Question 11

(Table: Keynesian Equilibrium Analysis with Taxes and Net Exports) Given the data in the table, assume full employment income is $1,000 while the current equilibrium is $750. If the government wants to eliminate the recessionary gap while maintaining a balanced budget, it must increase spending by

Accepted Answer

A)  $100 and decrease taxes by $100. 
B)  $250 decrease taxes by $250. 
C)  $100 and increase taxes by $100. 
D)  $250 increase taxes by $250. 
A)  $100 and decrease taxes by $100. 
B)  $250 decrease taxes by $250. 
C)  $100 and increase taxes by $100. 
D)  $250 increase taxes by $250.

Question 12

Analyze savings using the average propensity to save (APS) and the marginal propensity to save (MPS) using numerical examples.

Accepted Answer

The APS is equal to saving divided by in

Question 13

The marginal propensity to save is equal to the change in consumption divided by the change in income.

Accepted Answer

A) True 
 B)False

Question 14

The slope of the saving schedule is

Accepted Answer

A)  the marginal propensity to consume. 
B)  1 minus the marginal propensity to consume. 
C)  the average propensity to consume. 
D)  the average propensity to save. 
A)  the marginal propensity to consume. 
B)  1 minus the marginal propensity to consume. 
C)  the average propensity to consume. 
D)  the average propensity to save.

Question 15

Equilibrium income is reached when injections equal withdrawals.

Accepted Answer

A) True 
 B)False

Question 16

The paradox of thrift suggests that when households intend to save more, they will _____ consumption, which will ultimately lead to _____ actual aggregate saving.

Accepted Answer

A)  reduce; lower 
B)  reduce; higher 
C)  increase; lower 
D)  increase; higher 
A)  reduce; lower 
B)  reduce; higher 
C)  increase; lower 
D)  increase; higher

Question 17

Which of these is NOT true regarding the Keynesian model?

Accepted Answer

A)  Aggregate expenditures can be expressed as C + I + G + (X - M). 
B)  GDP can be measured as the sum of all spending. 
C)  The four main types of spending are consumer, investment, government, and net exports. 
D)  Aggregate spending is always less than aggregate income. 
A)  Aggregate expenditures can be expressed as C + I + G + (X - M). 
B)  GDP can be measured as the sum of all spending. 
C)  The four main types of spending are consumer, investment, government, and net exports. 
D)  Aggregate spending is always less than aggregate income.

Question 18

The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.

Accepted Answer

A) True 
 B)False

Question 19

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is

Accepted Answer

A)  -$0.2 trillion. 
B)  $0.05 trillion. 
C)  $0.1 trillion. 
D)  $0.2 trillion. 
A)  -$0.2 trillion. 
B)  $0.05 trillion. 
C)  $0.1 trillion. 
D)  $0.2 trillion.

Question 20

If income rises from $10,000 to $20,000 and consumption increases from $9,000 to $16,000, then the marginal propensity to consume is

Accepted Answer

A)  0.10. 
B)  0.30. 
C)  0.70. 
D)  0.80. 
A)  0.10. 
B)  0.30. 
C)  0.70. 
D)  0.80.

Classical economists believed that the forces of supply and demand in the market would keep the economy at full employment.

One of the determinants of investment is the current level of capital goods.

(Figure: Simple Keynesian Model) In the figure, equilibrium savings equals _____ when investment is at AE = C + I_0, and _____ when investment is at AE = C + I_1.

Income rises when desired investment is

Which expenditure component decreased the most between 1929 and 1933?

Saving is zero when the economy is in macroeconomic equilibrium in the simple Keynesian model.

The simple Keynesian model ignores

Which statement(s) is/are TRUE about Keynes's simple model of the economy? I. The aggregate price level is fixed. II) All savings are considered to be personal savings. III) There is considerable slack in the economy.

Disposable income equals income

In the Keynesian model, desired investment equals actual investment when the economy is in equilibrium.

(Table: Keynesian Equilibrium Analysis with Taxes and Net Exports) Given the data in the table, assume full employment income is $1,000 while the current equilibrium is $750. If the government wants to eliminate the recessionary gap while maintaining a balanced budget, it must increase spending by

Analyze savings using the average propensity to save (APS) and the marginal propensity to save (MPS) using numerical examples.

The marginal propensity to save is equal to the change in consumption divided by the change in income.

The slope of the saving schedule is

Equilibrium income is reached when injections equal withdrawals.

The paradox of thrift suggests that when households intend to save more, they will _ consumption, which will ultimately lead to _ actual aggregate saving.

Which of these is NOT true regarding the Keynesian model?

The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is

If income rises from $10,000 to $20,000 and consumption increases from $9,000 to $16,000, then the marginal propensity to consume is

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

Classical economists believed that the forces of supply and demand in the market would keep the economy at full employment.

One of the determinants of investment is the current level of capital goods.

(Figure: Simple Keynesian Model) In the figure, equilibrium savings equals _____ when investment is at AE = C + I0, and _____ when investment is at AE = C + I1.

Income rises when desired investment is

Which expenditure component decreased the most between 1929 and 1933?

Saving is zero when the economy is in macroeconomic equilibrium in the simple Keynesian model.

The simple Keynesian model ignores

Which statement(s) is/are TRUE about Keynes's simple model of the economy? I. The aggregate price level is fixed. II) All savings are considered to be personal savings. III) There is considerable slack in the economy.

Disposable income equals income

In the Keynesian model, desired investment equals actual investment when the economy is in equilibrium.

(Table: Keynesian Equilibrium Analysis with Taxes and Net Exports) Given the data in the table, assume full employment income is $1,000 while the current equilibrium is $750. If the government wants to eliminate the recessionary gap while maintaining a balanced budget, it must increase spending by

Analyze savings using the average propensity to save (APS) and the marginal propensity to save (MPS) using numerical examples.

The marginal propensity to save is equal to the change in consumption divided by the change in income.

The slope of the saving schedule is

Equilibrium income is reached when injections equal withdrawals.

The paradox of thrift suggests that when households intend to save more, they will _____ consumption, which will ultimately lead to _____ actual aggregate saving.

Which of these is NOT true regarding the Keynesian model?

The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is

If income rises from $10,000 to $20,000 and consumption increases from $9,000 to $16,000, then the marginal propensity to consume is

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

(Figure: Simple Keynesian Model) In the figure, equilibrium savings equals _____ when investment is at AE = C + I_0, and _____ when investment is at AE = C + I_1.

The paradox of thrift suggests that when households intend to save more, they will _ consumption, which will ultimately lead to _ actual aggregate saving.