Exam 19: The Keynesian Model in Action

Assume that an inflationary gap must be closed by reducing aggregate expenditures. If consumers refuse to cut spending on consumption and producers won't cut demand for investment goods, the President:

If the MPC = 1, the spending multiplier is:

An economy that is operating below its full-employment capacity is experiencing a(n):

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:

Assume General Motors has decided to build an assembly plant in St. Louis. The plant will employ 1,000 full-time workers at an annual wage of $40,000 each. If the marginal propensity to consume in St. Louis is 2/3, what change in income will result from operation of the plant for one year?

When an economy is operating well below its full-employment capacity and the marginal propensity to consume is 0.75, a $10 billion increase in investment spending will cause the equilibrium output to rise by:

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

In the Keynesian model, the larger the marginal propensity to consume, the:

If a nation imports more than it exports, then its net exports are:

The spending multiplier indicates that:

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

In the Keynesian aggregate expenditures model, "aggregate expenditures" refer to:

Within the framework of the aggregate expenditures model, which of the following is true ?

If an increase in investment of $50 causes an increase in real GDP of $250, the value of the spending multiplier is:

A $500 increase in investment will shift the aggregate expenditures curve up by:

Which of the following explains why a $100 billion reduction in consumption spending might decrease equilibrium real GDP by more than $100 billion?

In the aggregate expenditures model, if aggregate expenditures (AE) equal $6 trillion and GDP equals $7 trillion, then:

In the Keynesian model, investment, government spending, and net exports are treated as autonomous expenditures, which means they are independent of:

Suppose real GDP is $800 billion when the MPC is 0.80, and people decide to increase their saving by $30 billion. Before this change, the economy was in equilibrium with people intending to save $100 billion and producers intending to invest $100 billion. The new equilibrium level of real GDP is:

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