Question 1

The slope of the consumption function:

Accepted Answer

A) is vertical. 
B) is horizontal. 
C) equals 1. 
D) equals the marginal propensity to consume. 
A) is vertical. 
B) is horizontal. 
C) equals 1. 
D) equals the marginal propensity to consume.

Question 2

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

Accepted Answer

A) for government to finance deficit spending. 
B) to fight inflation. 
C) for businesses and consumers to borrow money. 
D) to shift the PAE line downward. 
A) for government to finance deficit spending. 
B) to fight inflation. 
C) for businesses and consumers to borrow money. 
D) to shift the PAE line downward.

Question 3

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Induced expenditure equals:

Accepted Answer

A) 0.25Y. 
B) 320 + 0.25Y. 
C) 0.75Y. 
D) 290 + 0.75Y. 
A) 0.25Y. 
B) 320 + 0.25Y. 
C) 0.75Y. 
D) 290 + 0.75Y.

Question 4

The marginal propensity to consume (mpc)is the:

Accepted Answer

A) amount by which disposable income increases when consumption increases by $1. 
B) amount by which consumption increases when disposable income increases by $1. 
C) percentage by which consumption increases when disposable income increases by 1 percent. 
D) percentage by which disposable income increases when consumption increases by 1 percent. 
A) amount by which disposable income increases when consumption increases by $1. 
B) amount by which consumption increases when disposable income increases by $1. 
C) percentage by which consumption increases when disposable income increases by 1 percent. 
D) percentage by which disposable income increases when consumption increases by 1 percent.

Question 5

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals:

Accepted Answer

A) 1,000. 
B) 1,160. 
C) 1,280. 
D) 1,440. 
A) 1,000. 
B) 1,160. 
C) 1,280. 
D) 1,440.

Question 6

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Planned aggregate expenditure equals:

Accepted Answer

A) 990 + 0.20Y. 
B) 900 + 0.80Y. 
C) 940 + 0.80Y. 
D) 990 + 0.80Y. 
A) 990 + 0.20Y. 
B) 900 + 0.80Y. 
C) 940 + 0.80Y. 
D) 990 + 0.80Y.

Question 7

As disposable income increases, consumption:

Accepted Answer

A) increases. 
B) decreases. 
C) may either increase or decrease depending on the wealth effect. 
D) may either increase or decrease depending on the mpc. 
A) increases. 
B) decreases. 
C) may either increase or decrease depending on the wealth effect. 
D) may either increase or decrease depending on the mpc.

Question 8

Contractionary policies are government stabilization policies intended to decrease:

Accepted Answer

A) population. 
B) unemployment. 
C) average labor productivity. 
D) planned spending. 
A) population. 
B) unemployment. 
C) average labor productivity. 
D) planned spending.

Question 9

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

Accepted Answer

A) increased by $10 billion. 
B) decreased by $10 billion. 
C) increased by more than $10 billion. 
D) decreased by less than $10 billion. 
A) increased by $10 billion. 
B) decreased by $10 billion. 
C) increased by more than $10 billion. 
D) decreased by less than $10 billion.

Question 10

When real output increases, planned aggregate expenditures increase because:

Accepted Answer

A) autonomous expenditures increase. 
B) autonomous expenditures decrease. 
C) induced expenditures increase. 
D) induced expenditures decrease. 
A) autonomous expenditures increase. 
B) autonomous expenditures decrease. 
C) induced expenditures increase. 
D) induced expenditures decrease.

Question 11

If firms sell more output than expected, planned investment:

Accepted Answer

A) is greater than actual investment. 
B) is less than actual investment. 
C) equals actual investment. 
D) equals zero. 
A) is greater than actual investment. 
B) is less than actual investment. 
C) equals actual investment. 
D) equals zero.

Question 12

Government policies intended to increase planned spending and output are called ________ policies.

Accepted Answer

A) aggregate 
B) monetary 
C) fiscal 
D) expansionary 
A) aggregate 
B) monetary 
C) fiscal 
D) expansionary

Question 13

The portion of planned aggregate expenditure that is independent of output is called ________ expenditure.

Accepted Answer

A) potential 
B) planned 
C) actual 
D) autonomous 
A) potential 
B) planned 
C) actual 
D) autonomous

Question 14

In the Keynesian cross diagram, the ________ line shows the relationship between planned aggregate expenditure and output, and the ________ line represents the condition that planned aggregate expenditure and output are equal.

Accepted Answer

A) consumption function; 45-degree 
B) 45-degree; consumption function 
C) expenditure; 45-degree 
D) 45 degree; expenditure 
A) consumption function; 45-degree 
B) 45-degree; consumption function 
C) expenditure; 45-degree 
D) 45 degree; expenditure

Question 15

The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ________ is built.

Accepted Answer

A) the basic Keynesian model 
B) Okun's Law 
C) the supply and demand model 
D) quantity equation for money 
A) the basic Keynesian model 
B) Okun's Law 
C) the supply and demand model 
D) quantity equation for money

Question 16

Changes in autonomous consumption could be the result of:

Accepted Answer

A) changes in disposable income. 
B) changes in inflation. 
C) changes in the mpc. 
D) changes in housing prices. 
A) changes in disposable income. 
B) changes in inflation. 
C) changes in the mpc. 
D) changes in housing prices.

Question 17

Short-run equilibrium output is the level of output at which actual output:

Accepted Answer

A) equals potential output. 
B) maximizes firm profits. 
C) equals real GDP per capita. 
D) equals planned aggregate expenditure. 
A) equals potential output. 
B) maximizes firm profits. 
C) equals real GDP per capita. 
D) equals planned aggregate expenditure.

Question 18

The expenditure line in the Keynesian cross diagram represents the:

Accepted Answer

A) equilibrium condition that Y = PAE. 
B) relationship between planned expenditure and output. 
C) relationship between consumption and after-tax disposable income. 
D) equilibrium condition that Y = Y*. 
A) equilibrium condition that Y = PAE. 
B) relationship between planned expenditure and output. 
C) relationship between consumption and after-tax disposable income. 
D) equilibrium condition that Y = Y*.

Question 19

For an economy starting at potential output, a decrease in autonomous expenditure in the short run results in a(n):

Accepted Answer

A) expansionary output gap. 
B) recessionary output gap. 
C) increase in potential output. 
D) decrease in potential output. 
A) expansionary output gap. 
B) recessionary output gap. 
C) increase in potential output. 
D) decrease in potential output.

Question 20

In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm changes:

Accepted Answer

A) prices to meet the demand. 
B) production levels to meet the demand. 
C) prices and production levels to meet demand. 
D) prices, but holds production levels constant, to meet the demand. 
A) prices to meet the demand. 
B) production levels to meet the demand. 
C) prices and production levels to meet demand. 
D) prices, but holds production levels constant, to meet the demand.

Exam 25: Spending and Output in the Short Run

The slope of the consumption function:

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Induced expenditure equals:

The marginal propensity to consume (mpc)is the:

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals:

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Planned aggregate expenditure equals:

As disposable income increases, consumption:

Contractionary policies are government stabilization policies intended to decrease:

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

When real output increases, planned aggregate expenditures increase because:

If firms sell more output than expected, planned investment:

Government policies intended to increase planned spending and output are called ________ policies.

The portion of planned aggregate expenditure that is independent of output is called ________ expenditure.

In the Keynesian cross diagram, the ________ line shows the relationship between planned aggregate expenditure and output, and the ________ line represents the condition that planned aggregate expenditure and output are equal.

The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ________ is built.

Changes in autonomous consumption could be the result of:

Short-run equilibrium output is the level of output at which actual output:

The expenditure line in the Keynesian cross diagram represents the:

For an economy starting at potential output, a decrease in autonomous expenditure in the short run results in a(n):

In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm changes:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

In the Keynesian cross diagram, the line shows the relationship between planned aggregate expenditure and output, and the line represents the condition that planned aggregate expenditure and output are equal.