Question 1

According to the Keynesian model, an economy will have persistent, high unemployment if:

Accepted Answer

A) the government runs a budget deficit. 
B) markets operate freely. 
C) its total spending is too low. 
D) firms make too many investments. 
A) the government runs a budget deficit. 
B) markets operate freely. 
C) its total spending is too low. 
D) firms make too many investments.

Question 2

A recessionary gap:

Accepted Answer

A) is of little consequence in a capitalist economy. 
B) represents actual physical output lost. 
C) implies an equilibrium level of output less than the full-employment level. 
D) is associated with rising labor prices. 
E) will automatically close, according to the Keynesian model. 
A) is of little consequence in a capitalist economy. 
B) represents actual physical output lost. 
C) implies an equilibrium level of output less than the full-employment level. 
D) is associated with rising labor prices. 
E) will automatically close, according to the Keynesian model.

Question 3

Within the Keynesian aggregate expenditure-output model, if an economy operates below full employment:

Accepted Answer

A) a reduction in wage rates and resource prices will soon restore full-employment equilibrium. 
B) a reduction in the real interest rate will soon restore full-employment equilibrium. 
C) an increase in the real interest rate will soon restore full-employment equilibrium. 
D) the economy may remain below full employment unless aggregate expenditures increase. 
A) a reduction in wage rates and resource prices will soon restore full-employment equilibrium. 
B) a reduction in the real interest rate will soon restore full-employment equilibrium. 
C) an increase in the real interest rate will soon restore full-employment equilibrium. 
D) the economy may remain below full employment unless aggregate expenditures increase.

Question 4

The spending multiplier indicates that:

Accepted Answer

A) changes in investment, government, or consumption spending trigger much larger changes in real GDP. 
B) an autonomous increase in saving will cause output to rise by a multiple of the additional saving. 
C) a market economy will be more stable than classical economists thought. 
D) the marginal propensity to consume is greater than one. 
A) changes in investment, government, or consumption spending trigger much larger changes in real GDP. 
B) an autonomous increase in saving will cause output to rise by a multiple of the additional saving. 
C) a market economy will be more stable than classical economists thought. 
D) the marginal propensity to consume is greater than one.

Question 5

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

Accepted Answer

A) inventory is unchanged. 
B) inventory is depleted. 
C) employment increases. 
D) GDP decreases. 
A) inventory is unchanged. 
B) inventory is depleted. 
C) employment increases. 
D) GDP decreases.

Question 6

If consumption expenditures are $200 billion, total investment is $50 billion, government purchases are $40 billion, exports are $45 billion, imports are $40 billion, aggregate expenditures must be:

Accepted Answer

A) $275 billion. 
B) $295 billion. 
C) $320 billion. 
D) $395 billion. 
A) $275 billion. 
B) $295 billion. 
C) $320 billion. 
D) $395 billion.

Question 7

The greater the marginal propensity to consume in the economy, the smaller the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 9-5 Keynesian aggregate-expenditures model where the MPC is 0.75   In Exhibit 9-5, the spending multiplier for this economy is equal to:

Accepted Answer

A) 1.33. 
B) 4. 
C) 7.5. 
D) 8. 
A) 1.33. 
B) 4. 
C) 7.5. 
D) 8.

Question 9

If the MPC = 1, the spending multiplier is:

Accepted Answer

A) infinite. 
B) zero. 
C) 10. 
D) 100. 
E) 1. 
A) infinite. 
B) zero. 
C) 10. 
D) 100. 
E) 1.

Question 10

If the marginal propensity to save (MPS)is 0.25, the value of the spending multiplier is:

Accepted Answer

A) 1. 
B) 2. 
C) 4. 
D) 9. 
A) 1. 
B) 2. 
C) 4. 
D) 9.

Question 11

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

Accepted Answer

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

Question 12

Use the aggregate expenditures model and assume an economy is in equilibrium at $6 trillion which is $500 billion below full-employment GDP. If the marginal propensity to consume (MPC)is 0.75, full-employment GDP can be reached if government spending:

Accepted Answer

A) increases by $75 billion. 
B) increases by $125 billion. 
C) increases by $500 billion. 
D) is held constant. 
A) increases by $75 billion. 
B) increases by $125 billion. 
C) increases by $500 billion. 
D) is held constant.

Question 13

An increase in the marginal propensity to consume (MPC)leads to a decrease in the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 9-7 Keynesian aggregate-expenditures model   In Exhibit 9-7, if I = 0, C = Y at:

Accepted Answer

A) $300. 
B) $500. 
C) $800. 
D) $100. 
E) $200. 
A) $300. 
B) $500. 
C) $800. 
D) $100. 
E) $200.

Question 15

An increase in the marginal propensity to consume (MPC)leads to an increase in the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 9-2 Keynesian aggregate-expenditures model   As shown in Exhibit 9-2, if GDP is $3 trillion, the economy experiences unplanned inventory:

Accepted Answer

A) depletion of $1 trillion. 
B) depletion of $2 trillion. 
C) accumulation of $1 trillion. 
D) accumulation of $2 trillion. 
A) depletion of $1 trillion. 
B) depletion of $2 trillion. 
C) accumulation of $1 trillion. 
D) accumulation of $2 trillion.

Question 17

Use the aggregate expenditures model and assume the marginal propensity to consume (MPC)is 0.80. An increase in government spending of $1 billion would result in an increase in GDP of:

Accepted Answer

A) $0. 
B) $0.8 billion. 
C) $1.0 billion. 
D) $5.0 billion. 
E) $8.0 billion. 
A) $0. 
B) $0.8 billion. 
C) $1.0 billion. 
D) $5.0 billion. 
E) $8.0 billion.

Question 18

Exhibit 9-1 GDP and consumption data
 
As shown in Exhibit 9-1, if equilibrium GDP is $5 trillion, then the total of investment, government spending, and net exports is:

Accepted Answer

A) $1 trillion. 
B) $2 trillion. 
C) $3 trillion. 
D) $4 trillion. 
E) $6 trillion. 
A) $1 trillion. 
B) $2 trillion. 
C) $3 trillion. 
D) $4 trillion. 
E) $6 trillion.

Question 19

Within the framework of the aggregate expenditures model, what will happen if an economy is operating at a real GDP greater than full-employment real GDP?

Accepted Answer

A) An inflationary gap exists. 
B) Real GDP will fall. 
C) The inventories of firms will rise. 
D) Firms will cut back on their current rate of output. 
A) An inflationary gap exists. 
B) Real GDP will fall. 
C) The inventories of firms will rise. 
D) Firms will cut back on their current rate of output.

Question 20

The Keynesian model shows that the economy has a natural tendency toward full employment.

Accepted Answer

A) True 
 B)False

Exam 9: The Keynesian Model in Action

According to the Keynesian model, an economy will have persistent, high unemployment if:

A recessionary gap:

Within the Keynesian aggregate expenditure-output model, if an economy operates below full employment:

The spending multiplier indicates that:

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

If consumption expenditures are $200 billion, total investment is $50 billion, government purchases are $40 billion, exports are $45 billion, imports are $40 billion, aggregate expenditures must be:

The greater the marginal propensity to consume in the economy, the smaller the spending multiplier.

Exhibit 9-5 Keynesian aggregate-expenditures model where the MPC is 0.75 In Exhibit 9-5, the spending multiplier for this economy is equal to:

If the MPC = 1, the spending multiplier is:

If the marginal propensity to save (MPS)is 0.25, the value of the spending multiplier is:

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

Use the aggregate expenditures model and assume an economy is in equilibrium at $6 trillion which is $500 billion below full-employment GDP. If the marginal propensity to consume (MPC)is 0.75, full-employment GDP can be reached if government spending:

An increase in the marginal propensity to consume (MPC)leads to a decrease in the spending multiplier.

Exhibit 9-7 Keynesian aggregate-expenditures model In Exhibit 9-7, if I = 0, C = Y at:

An increase in the marginal propensity to consume (MPC)leads to an increase in the spending multiplier.

Exhibit 9-2 Keynesian aggregate-expenditures model As shown in Exhibit 9-2, if GDP is $3 trillion, the economy experiences unplanned inventory:

Use the aggregate expenditures model and assume the marginal propensity to consume (MPC)is 0.80. An increase in government spending of $1 billion would result in an increase in GDP of:

Exhibit 9-1 GDP and consumption data As shown in Exhibit 9-1, if equilibrium GDP is $5 trillion, then the total of investment, government spending, and net exports is:

Within the framework of the aggregate expenditures model, what will happen if an economy is operating at a real GDP greater than full-employment real GDP?

The Keynesian model shows that the economy has a natural tendency toward full employment.

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

Filters