Question 1

Planned spending includes the intended or desired spending by households and firms in the economy.

Accepted Answer

A) True 
 B)False

Question 2

What was John Maynard Keynes's primary message concerning recessions and depressions?

Accepted Answer

A) Governments should not intervene in the economy, but leave the economy to recover of its own accord from a recession or depression. 
B) Recessions and depressions can occur as a result of inadequate aggregate demand for goods and services. 
C) Long run policy intervention by governments is needed to avoid recessions and depressions. 
D) Recessions and depressions are entirely monetary phenomena. 
A) Governments should not intervene in the economy, but leave the economy to recover of its own accord from a recession or depression. 
B) Recessions and depressions can occur as a result of inadequate aggregate demand for goods and services. 
C) Long run policy intervention by governments is needed to avoid recessions and depressions. 
D) Recessions and depressions are entirely monetary phenomena.

Question 3

What does the Keynesian cross diagram show?

Accepted Answer

The Keynesian cross diagram sh

Question 4

Refer to Figure 1 below.If the vertical distance labelled Z represents a deflationary gap then which of the following statements is true? Figure 1

Accepted Answer

A) Y₂ represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M)₂ to C+I+G+(X-M)₁ in order to increase output and employment. 
B) Y₁ represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M)₂ to C+I+G+(X-M)₁ in order to increase output and employment. 
C) Y₂ represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M)₁ to C+I+G+(X-M)₂ in order to increase output and employment. 
D) Y₁ represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M)₁ to C+I+G+(X-M)₂ in order to increase output and employment. 
A) Y₂ represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M)₂ to C+I+G+(X-M)₁ in order to increase output and employment. 
B) Y₁ represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M)₂ to C+I+G+(X-M)₁ in order to increase output and employment. 
C) Y₂ represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M)₁ to C+I+G+(X-M)₂ in order to increase output and employment. 
D) Y₁ represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M)₁ to C+I+G+(X-M)₂ in order to increase output and employment.

Question 5

Suppose that there are no crowding out effects and the MPC is 0.9.By how much must the government increase expenditures to shift the aggregate demand curve right by R10 billion?

Accepted Answer

An MPC of 0.9 means the multiplier = 1/(

Question 6

Figure 4
  
-Refer to Figure 4 above.Figure 4 shows the IS-LM model.Which of the following statements about the figure is NOT true?

Accepted Answer

A) The figure shows the economy would be in general equilibrium when the interest rate is i1 and the level of national income is Y₁. 
B) The figure shows that an expansionary monetary policy will lead to an increase in national income and an increase in interest rates. 
C) The figure shows that an expansionary fiscal policy will lead to an increase in national income and an increase in interest rates. 
D) The figure shows the effect of an increase in autonomous expenditure. 
A) The figure shows the economy would be in general equilibrium when the interest rate is i1 and the level of national income is Y₁. 
B) The figure shows that an expansionary monetary policy will lead to an increase in national income and an increase in interest rates. 
C) The figure shows that an expansionary fiscal policy will lead to an increase in national income and an increase in interest rates. 
D) The figure shows the effect of an increase in autonomous expenditure.

Question 7

John Maynard Keynes' General Theory was an attempt to explain how economies operate at equilibrium in the long run.

Accepted Answer

A) True 
 B)False

Question 8

Assume a central bank has been charged with maintaining the price level at a rate of 2 per cent.For the past twelve months the inflation rate has been at target, and interest rates have been stable, but the government has been concerned over signs of a slowdown in economic activity.As a result the government has decided to increase its spending on infrastructure projects.If the central bank wishes to maintain interest rates (and inflation) at a stable rate what should it do in the light if this decision?

Accepted Answer

A) Nothing as changes in government spending on infrastructure does not affect consumer price inflation. 
B) Expand the money supply to maintain interest rates at a level consistent with its forecast of consumer price inflation. 
C) Reduce the money supply by an equal amount to counteract the increase in government spending. 
D) Persuade the government that any additional spending must be financed purely by taxation so that monetary policy does not have to change. 
A) Nothing as changes in government spending on infrastructure does not affect consumer price inflation. 
B) Expand the money supply to maintain interest rates at a level consistent with its forecast of consumer price inflation. 
C) Reduce the money supply by an equal amount to counteract the increase in government spending. 
D) Persuade the government that any additional spending must be financed purely by taxation so that monetary policy does not have to change.

Question 9

Assume that the economy is in equilibrium at an interest rate and level of national income where the IS curve cuts the LM curve.A large cut in government spending would be expected to

Accepted Answer

A) increase interest rates and the level of national income. 
B) reduce interest rates but increase the level of national income. 
C) reduce interest rates and the level of national income. 
D) shift the IS curve to the right. 
E) leave the economy in an unchanged position because the marginal propensity to consume is constant. 
A) increase interest rates and the level of national income. 
B) reduce interest rates but increase the level of national income. 
C) reduce interest rates and the level of national income. 
D) shift the IS curve to the right. 
E) leave the economy in an unchanged position because the marginal propensity to consume is constant.

Question 10

General equilibrium in an economy occurs

Accepted Answer

A) at a particular interest rate where the goods market and the money market are both in equilibrium. 
B) when the equilibrium level of national income in the goods market is the same as that in the money market at full employment output. 
C) when interest rates in the money market and the financial markets are the same. 
D) when investment equals saving. 
A) at a particular interest rate where the goods market and the money market are both in equilibrium. 
B) when the equilibrium level of national income in the goods market is the same as that in the money market at full employment output. 
C) when interest rates in the money market and the financial markets are the same. 
D) when investment equals saving.

Question 11

What is the relationship between the production possibilities frontier and the deflationary gap?

Accepted Answer

When there is a deflationary gap the eco

Question 12

In the money market, an increase in national income will, assuming all other things remain unchanged,

Accepted Answer

A) lead to a reduction in demand for money and a fall in the interest rate. 
B) lead to an increase in demand for money and a rise in the interest rate. 
C) lead to an increase in demand for money and a fall in the interest rate. 
D) lead to a reduction in demand for money and a rise in the interest rate. 
A) lead to a reduction in demand for money and a fall in the interest rate. 
B) lead to an increase in demand for money and a rise in the interest rate. 
C) lead to an increase in demand for money and a fall in the interest rate. 
D) lead to a reduction in demand for money and a rise in the interest rate.

Question 13

Which of the following will generate a multiplier effect in the South African economy?

Accepted Answer

A) An increase in exports of luxury South African cars to China. 
B) An increase in investment in the SA wine industry. 
C) A reduction in consumer spending due to a sudden and substantial fall in SA stock markets that reduces household wealth. 
D) All of the above. 
A) An increase in exports of luxury South African cars to China. 
B) An increase in investment in the SA wine industry. 
C) A reduction in consumer spending due to a sudden and substantial fall in SA stock markets that reduces household wealth. 
D) All of the above.

Question 14

An increase in the demand for money causes a shift of the demand for money curve to the right and a movement along the LM curve reflecting a higher interest rate and level of national income.

Accepted Answer

A) True 
 B)False

Question 15

In the IS-LM model, general equilibrium refers to a situation in which

Accepted Answer

A) there is full employment in an economy. 
B) the goods market and money market in an economy are both in equilibrium. 
C) the goods market and money market in an economy are both in equilibrium and there is full employment in that economy. 
D) the markets for all goods and services in an economy are in equilibrium. 
A) there is full employment in an economy. 
B) the goods market and money market in an economy are both in equilibrium. 
C) the goods market and money market in an economy are both in equilibrium and there is full employment in that economy. 
D) the markets for all goods and services in an economy are in equilibrium.

Question 16

Suppose that the government increases expenditures by R150 billion while increasing taxes by R150 billion.Suppose that the MPC is 0.80 and that there are no crowding out or accelerator effects.What are the combined effects of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/(1-MPC) = 1/(1-0.8)

Question 17

Suppose that the government spends more on building new schools.What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding out, taxes, and investment accelerator effects?

Accepted Answer

The increase in expenditures means that

Question 18

Refer to Figure 5 below.In Figure 5, national income has fallen from its full employment level YF to a lower level, YU, at which there is unemployment.This may have been due to a decline in exports that has shifted the IS curve to the left.What might cause the LM curve to automatically move to the right and so move the economy back towards YF? Figure 5

Accepted Answer

A) A rise in the general level of prices in the economy. 
B) A fall in the general level of prices in the economy. 
C) A rise in government spending. 
D) A reduction in taxes. 
A) A rise in the general level of prices in the economy. 
B) A fall in the general level of prices in the economy. 
C) A rise in government spending. 
D) A reduction in taxes.

Question 19

The slope of the expenditure line is dependent upon

Accepted Answer

A) the marginal propensity to consume. 
B) the marginal efficiency of capital. 
C) how far the government decides to increase autonomous expenditure. 
D) the slope of the 45 degree line. 
A) the marginal propensity to consume. 
B) the marginal efficiency of capital. 
C) how far the government decides to increase autonomous expenditure. 
D) the slope of the 45 degree line.

Question 20

A key element of Keynesian analysis relates to:

Accepted Answer

A) policies to reduce the difference between planned and actual spending and investment. 
B) using taxation as a means to influence the interest rate in an economy. 
C) the similarities between short term fluctuations in macroeconomic variables and how they behave in the long run. 
D) the distinction between planned spending and investment and actual spending and investment. 
A) policies to reduce the difference between planned and actual spending and investment. 
B) using taxation as a means to influence the interest rate in an economy. 
C) the similarities between short term fluctuations in macroeconomic variables and how they behave in the long run. 
D) the distinction between planned spending and investment and actual spending and investment.

Planned spending includes the intended or desired spending by households and firms in the economy.

What was John Maynard Keynes's primary message concerning recessions and depressions?

What does the Keynesian cross diagram show?

Refer to Figure 1 below.If the vertical distance labelled Z represents a deflationary gap then which of the following statements is true? Figure 1

Suppose that there are no crowding out effects and the MPC is 0.9.By how much must the government increase expenditures to shift the aggregate demand curve right by R10 billion?

Figure 4 -Refer to Figure 4 above.Figure 4 shows the IS-LM model.Which of the following statements about the figure is NOT true?

John Maynard Keynes' General Theory was an attempt to explain how economies operate at equilibrium in the long run.

Assume that the economy is in equilibrium at an interest rate and level of national income where the IS curve cuts the LM curve.A large cut in government spending would be expected to

General equilibrium in an economy occurs

What is the relationship between the production possibilities frontier and the deflationary gap?

In the money market, an increase in national income will, assuming all other things remain unchanged,

Which of the following will generate a multiplier effect in the South African economy?

An increase in the demand for money causes a shift of the demand for money curve to the right and a movement along the LM curve reflecting a higher interest rate and level of national income.

In the IS-LM model, general equilibrium refers to a situation in which

Suppose that the government increases expenditures by R150 billion while increasing taxes by R150 billion.Suppose that the MPC is 0.80 and that there are no crowding out or accelerator effects.What are the combined effects of these changes? Why is the combined change not equal to zero?

Suppose that the government spends more on building new schools.What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding out, taxes, and investment accelerator effects?

The slope of the expenditure line is dependent upon

A key element of Keynesian analysis relates to:

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters

Exam 14: Keynesian Economics and the Is-Lm Analysis

Planned spending includes the intended or desired spending by households and firms in the economy.

What was John Maynard Keynes's primary message concerning recessions and depressions?

What does the Keynesian cross diagram show?

Refer to Figure 1 below.If the vertical distance labelled Z represents a deflationary gap then which of the following statements is true? Figure 1

Suppose that there are no crowding out effects and the MPC is 0.9.By how much must the government increase expenditures to shift the aggregate demand curve right by R10 billion?

Figure 4 -Refer to Figure 4 above.Figure 4 shows the IS-LM model.Which of the following statements about the figure is NOT true?

John Maynard Keynes' General Theory was an attempt to explain how economies operate at equilibrium in the long run.

Assume that the economy is in equilibrium at an interest rate and level of national income where the IS curve cuts the LM curve.A large cut in government spending would be expected to

General equilibrium in an economy occurs

What is the relationship between the production possibilities frontier and the deflationary gap?

In the money market, an increase in national income will, assuming all other things remain unchanged,

Which of the following will generate a multiplier effect in the South African economy?

An increase in the demand for money causes a shift of the demand for money curve to the right and a movement along the LM curve reflecting a higher interest rate and level of national income.

In the IS-LM model, general equilibrium refers to a situation in which

Suppose that the government increases expenditures by R150 billion while increasing taxes by R150 billion.Suppose that the MPC is 0.80 and that there are no crowding out or accelerator effects.What are the combined effects of these changes? Why is the combined change not equal to zero?

Suppose that the government spends more on building new schools.What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding out, taxes, and investment accelerator effects?

The slope of the expenditure line is dependent upon

A key element of Keynesian analysis relates to:

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters