Question 1

If the MPC = .80, and investment rises from $100 to $150, real GDP will increase by:

Accepted Answer

A) $50. 
B) $125. 
C) $20. 
D) $250. 
E) $200. 
A) $50. 
B) $125. 
C) $20. 
D) $250. 
E) $200.

Question 2

The equilibrium level of real GDP is $1,000, the target level of real GDP is $1,250, and the marginal propensity to consume (MPC)is 0.60. The target can be reached if government spending is:

Accepted Answer

A) increased by $60 billion. 
B) increased by $100 billion. 
C) increased by $250 billion. 
D) held constant. 
A) increased by $60 billion. 
B) increased by $100 billion. 
C) increased by $250 billion. 
D) held constant.

Question 3

If the marginal propensity to consume is 0.80, the value of the spending multiplier will be 5.

Accepted Answer

A) True 
 B)False

Question 4

If the economy spends 80 percent of any increase in real GDP, then an increase in investment of $1 billion would result ultimately in an increase in real GDP of:

Accepted Answer

A) $0. 
B) $0.8 billion. 
C) $1.0 billion. 
D) $5.0 billion. 
A) $0. 
B) $0.8 billion. 
C) $1.0 billion. 
D) $5.0 billion.

Question 5

At all points to the right of the intersection of the aggregate output (Y)and aggregate expenditures (AE)curves, there will be unplanned inventory accumulation.

Accepted Answer

A) True 
 B)False

Question 6

In the aggregate expenditures model, a decrease in government spending causes a(n):

Accepted Answer

A) upward shift in the aggregate expenditures curve. 
B) downward shift in the aggregate expenditures curve. 
C) shift in the 45-degree line. 
D) rightward movement along the aggregate expenditures curve. 
E) leftward movement along the aggregate expenditures curve. 
A) upward shift in the aggregate expenditures curve. 
B) downward shift in the aggregate expenditures curve. 
C) shift in the 45-degree line. 
D) rightward movement along the aggregate expenditures curve. 
E) leftward movement along the aggregate expenditures curve.

Question 7

Exhibit 9-7 Keynesian aggregate-expenditures model   In Exhibit 9-7, the level of autonomous consumption is:

Accepted Answer

A) $50. 
B) $100. 
C) $150. 
D) $200. 
E) $0. 
A) $50. 
B) $100. 
C) $150. 
D) $200. 
E) $0.

Question 8

In the aggregate expenditures model, if aggregate expenditures (AE)are less than GDP, then GDP increases.

Accepted Answer

A) True 
 B)False

Question 9

The spending multiplier is defined as:

Accepted Answer

A) the ratio of the change in equilibrium output to the initial change in spending. 
B) the change in initial spending divided by the change in personal income. 
C) 1 \ (marginal propensity to consume). 
D) 1 \ (1 - marginal propensity to save). 
A) the ratio of the change in equilibrium output to the initial change in spending. 
B) the change in initial spending divided by the change in personal income. 
C) 1 \ (marginal propensity to consume). 
D) 1 \ (1 - marginal propensity to save).

Question 10

In the aggregate expenditures model, if aggregate expenditures (AE)equal $4 trillion and GDP equals $3 trillion, then:

Accepted Answer

A) inventory depletion equals - $1 trillion. 
B) inventory accumulation equals $1 trillion. 
C) investment equals - $1 trillion. 
D) investment equals $1 trillion. 
A) inventory depletion equals - $1 trillion. 
B) inventory accumulation equals $1 trillion. 
C) investment equals - $1 trillion. 
D) investment equals $1 trillion.

Question 11

If the MPC = .75, the spending multiplier is:

Accepted Answer

A) 4. 
B) 5. 
C) 1.33. 
D) 1.20. 
E) .25. 
A) 4. 
B) 5. 
C) 1.33. 
D) 1.20. 
E) .25.

Question 12

In the aggregate expenditures model, if an economy operates above equilibrium GDP, there will be:

Accepted Answer

A) unplanned inventory accumulation. 
B) unplanned inventory depletion. 
C) an increase in GDP. 
D) an increase in employment. 
A) unplanned inventory accumulation. 
B) unplanned inventory depletion. 
C) an increase in GDP. 
D) an increase in employment.

Question 13

The formula to compute the spending multiplier is:

Accepted Answer

A) 1 \ (MPC + MPS). 
B) 1 \ (1 - MP
C) . 
C) 1 \ (1 - MPS). 
D) 1 \ (C + I). 
A) 1 \ (MPC + MPS). 
B) 1 \ (1 - MP
C) . 
C) 1 \ (1 - MPS). 
D) 1 \ (C + I).

Question 14

The spending multiplier effect is the result of a movement along the aggregate expenditures (AE)line.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 9-7 Keynesian aggregate-expenditures model   In Exhibit 9-7, the value of the MPC is:

Accepted Answer

A) .20. 
B) .25. 
C) .50. 
D) .75. 
E) .80. 
A) .20. 
B) .25. 
C) .50. 
D) .75. 
E) .80.

Question 16

Exhibit 9-4 Keynesian aggregate expenditures model   When real GDP is $2,000 billion in Exhibit 9-4, the economy experiences inventory:

Accepted Answer

A) accumulation of $500 billion. 
B) accumulation of $700 billion. 
C) depletion of $700 billion. 
D) depletion of $500 billion. 
A) accumulation of $500 billion. 
B) accumulation of $700 billion. 
C) depletion of $700 billion. 
D) depletion of $500 billion.

Question 17

If the marginal propensity to consume is 0.80, the value of the spending multiplier will be 4.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 9-7 Keynesian aggregate-expenditures model   In Exhibit 9-7, the level of investment is:

Accepted Answer

A) $50. 
B) $100. 
C) $150. 
D) $200. 
E) $0. 
A) $50. 
B) $100. 
C) $150. 
D) $200. 
E) $0.

Question 19

According to the Keynesian aggregate expenditures model equilibrium and full employment:

Accepted Answer

A) always occur at the same income level of real GDP. 
B) may differ, but there is an automatic mechanism that directs the economy toward full-employment equilibrium. 
C) could never occur at the same level of real GDP. 
D) do not necessarily occur at the same level of real GDP. 
A) always occur at the same income level of real GDP. 
B) may differ, but there is an automatic mechanism that directs the economy toward full-employment equilibrium. 
C) could never occur at the same level of real GDP. 
D) do not necessarily occur at the same level of real GDP.

Question 20

Exhibit 9-3 Keynesian aggregate-expenditures model   As shown in Exhibit 9-3, equilibrium GDP is:

Accepted Answer

A) $2 trillion. 
B) $6 trillion. 
C) $10 trillion. 
D) $12 trillion. 
E) $14 trillion. 
A) $2 trillion. 
B) $6 trillion. 
C) $10 trillion. 
D) $12 trillion. 
E) $14 trillion.

Exam 9: The Keynesian Model in Action

If the MPC = .80, and investment rises from $100 to $150, real GDP will increase by:

The equilibrium level of real GDP is $1,000, the target level of real GDP is $1,250, and the marginal propensity to consume (MPC)is 0.60. The target can be reached if government spending is:

If the marginal propensity to consume is 0.80, the value of the spending multiplier will be 5.

If the economy spends 80 percent of any increase in real GDP, then an increase in investment of $1 billion would result ultimately in an increase in real GDP of:

At all points to the right of the intersection of the aggregate output (Y)and aggregate expenditures (AE)curves, there will be unplanned inventory accumulation.

In the aggregate expenditures model, a decrease in government spending causes a(n):

Exhibit 9-7 Keynesian aggregate-expenditures model In Exhibit 9-7, the level of autonomous consumption is:

In the aggregate expenditures model, if aggregate expenditures (AE)are less than GDP, then GDP increases.

The spending multiplier is defined as:

In the aggregate expenditures model, if aggregate expenditures (AE)equal $4 trillion and GDP equals $3 trillion, then:

If the MPC = .75, the spending multiplier is:

In the aggregate expenditures model, if an economy operates above equilibrium GDP, there will be:

The formula to compute the spending multiplier is:

The spending multiplier effect is the result of a movement along the aggregate expenditures (AE)line.

Exhibit 9-7 Keynesian aggregate-expenditures model In Exhibit 9-7, the value of the MPC is:

Exhibit 9-4 Keynesian aggregate expenditures model When real GDP is $2,000 billion in Exhibit 9-4, the economy experiences inventory:

If the marginal propensity to consume is 0.80, the value of the spending multiplier will be 4.

Exhibit 9-7 Keynesian aggregate-expenditures model In Exhibit 9-7, the level of investment is:

According to the Keynesian aggregate expenditures model equilibrium and full employment:

Exhibit 9-3 Keynesian aggregate-expenditures model As shown in Exhibit 9-3, equilibrium GDP is:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

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