Question 1

Exhibit 10-4  
-Refer to Exhibit 10-4.Marginal propensity to consume is equal to

Accepted Answer

A) AF divided by C0A. 
B) C0A divided by AF. 
C) AF divided by C0F. 
D) C0F divided by AF. 
E) none of the above 
A) AF divided by C0A. 
B) C0A divided by AF. 
C) AF divided by C0F. 
D) C0F divided by AF. 
E) none of the above

Question 2

According to Keynes,the private sector (by itself)

Accepted Answer

A) can always move the economy out of a recessionary gap in a timely manner. 
B) cannot always move the economy out of a recessionary gap in a timely manner. 
C) can never move the economy out of a recessionary gap. 
D) can only move the economy out of a recessionary gap if the SRAS curve drops. 
E) can only move the economy out of a recessionary gap if the SRAS curve rises. 
A) can always move the economy out of a recessionary gap in a timely manner. 
B) cannot always move the economy out of a recessionary gap in a timely manner. 
C) can never move the economy out of a recessionary gap. 
D) can only move the economy out of a recessionary gap if the SRAS curve drops. 
E) can only move the economy out of a recessionary gap if the SRAS curve rises.

Question 3

What type of relationship exists between the marginal propensity to consume (MPC)and the multiplier? Explain why this relationship exists,giving a hypothetical numerical example to help support your answer.

Accepted Answer

The MPC and the multiplier have a direct

Question 4

A change in autonomous spending leads to an even greater change in total spending through the multiplier process.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 10-6  
-Refer to Exhibit 10-6.If investment increases,it follows that

Accepted Answer

A) the TE curve will shift upward,possibly passing through point 2. 
B) the TE curve will shift downward,possibly passing through point 3. 
C) the TE curve will not change but the economy will move from point 1 to point 3. 
D) the TE curve will not change but the economy will move from point 1 to point 2. 
E) At the new equilibrium position,Real GDP will necessarily be Q1. 
A) the TE curve will shift upward,possibly passing through point 2. 
B) the TE curve will shift downward,possibly passing through point 3. 
C) the TE curve will not change but the economy will move from point 1 to point 3. 
D) the TE curve will not change but the economy will move from point 1 to point 2. 
E) At the new equilibrium position,Real GDP will necessarily be Q1.

Question 6

Keynes's major work,The General Theory of Employment,Interest and Money,was published during the

Accepted Answer

A) late 1800s. 
B) mid-1700s. 
C) 1930s. 
D) Panic of 1907. 
A) late 1800s. 
B) mid-1700s. 
C) 1930s. 
D) Panic of 1907.

Question 7

Autonomous spending rises by $10 billion and Real GDP rises by $50 billion.What does the marginal propensity to save equal?

Accepted Answer

A) 0.10 
B) 0.20 
C) 0.80 
D) 0.90 
E) 0.50 
A) 0.10 
B) 0.20 
C) 0.80 
D) 0.90 
E) 0.50

Question 8

According to Keynes,aggregate demand could be too low in an economy.What does this mean?

Accepted Answer

A) It means there is not enough purchasing power in the economy to maintain stable prices. 
B) It means there are too many of some goods produced and too few of other goods produced. 
C) It means spending in the economy is too low to bring about full employment. 
D) It means that wages may get stuck in a recessionary gap because there is not enough demand (in the economy)to increase them. 
E) none of the above 
A) It means there is not enough purchasing power in the economy to maintain stable prices. 
B) It means there are too many of some goods produced and too few of other goods produced. 
C) It means spending in the economy is too low to bring about full employment. 
D) It means that wages may get stuck in a recessionary gap because there is not enough demand (in the economy)to increase them. 
E) none of the above

Question 9

Which of the following statements would Keynes have been most likely to agree with?

Accepted Answer

A) Saving is more responsive to changes in interest rates than to changes in income. 
B) Say's law holds in both a barter and money economy. 
C) The internal structure of the economy is not always competitive enough to allow prices to fall. 
D) Investment is exclusively dependent upon the interest rate. 
E) none of the above 
A) Saving is more responsive to changes in interest rates than to changes in income. 
B) Say's law holds in both a barter and money economy. 
C) The internal structure of the economy is not always competitive enough to allow prices to fall. 
D) Investment is exclusively dependent upon the interest rate. 
E) none of the above

Question 10

If income rises from $1,000 to $1,400 and consumption rises from $1,100 to $1,440,the marginal propensity to save (MPS)is

Accepted Answer

A) 0.15. 
B) 0.85. 
C) 0.25. 
D) 0.20. 
A) 0.15. 
B) 0.85. 
C) 0.25. 
D) 0.20.

Question 11

How does the classical position on saving differ from Keynes's position?

Accepted Answer

A) Classical position: people save more at lower interest rates.Keynes's position: people save less at lower interest rates. 
B) Classical position: changes in the interest rate are irrelevant to saving decisions.Keynes's position: saving is directly related to the interest rate. 
C) Classical position: saving is directly related to the interest rate.Keynes's position: at times,saving may be inversely related to the interest rate. 
D) Classical position: saving can be inversely related to the interest rate.Keynes's position: consumption rises as saving rises. 
E) none of the above 
A) Classical position: people save more at lower interest rates.Keynes's position: people save less at lower interest rates. 
B) Classical position: changes in the interest rate are irrelevant to saving decisions.Keynes's position: saving is directly related to the interest rate. 
C) Classical position: saving is directly related to the interest rate.Keynes's position: at times,saving may be inversely related to the interest rate. 
D) Classical position: saving can be inversely related to the interest rate.Keynes's position: consumption rises as saving rises. 
E) none of the above

Question 12

The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result,__________ rises,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of goods and services they produce.

Accepted Answer

A) consumption;TE;downward;fall;increase 
B) consumption;TE;upward;fall;increase 
C) consumption;TE;upward;rise;decrease 
D) investment;TE;upward;fall;increase 
E) investment;TP;leftward;fall;increase 
A) consumption;TE;downward;fall;increase 
B) consumption;TE;upward;fall;increase 
C) consumption;TE;upward;rise;decrease 
D) investment;TE;upward;fall;increase 
E) investment;TP;leftward;fall;increase

Question 13

Keynes asserted that investment is more responsive to business expectations,technological changes and innovation,than to changes in interest rates.

Accepted Answer

A) True 
 B)False

Question 14

Keynesian macroeconomists believe that the time it takes for falling wages and prices to eliminate a recessionary gap is __________ enough to say that the economy is __________.

Accepted Answer

A) long;not self-regulating 
B) long;self-regulating 
C) short;not self-regulating 
D) short;self-regulating 
A) long;not self-regulating 
B) long;self-regulating 
C) short;not self-regulating 
D) short;self-regulating

Question 15

A rise in MPC makes the total expenditures (TE)curve __________ and __________ the multiplier.

Accepted Answer

A) steeper;raises 
B) steeper;lowers 
C) flatter;raises 
D) flatter;lowers 
A) steeper;raises 
B) steeper;lowers 
C) flatter;raises 
D) flatter;lowers

Question 16

Keynes believed that saving is

Accepted Answer

A) more responsive to changes in income than to changes in interest rates. 
B) less responsive to changes in income than to changes in interest rates. 
C) equally responsive to changes in income and to changes in interest rates. 
D) dependent only on changes in interest rates. 
A) more responsive to changes in income than to changes in interest rates. 
B) less responsive to changes in income than to changes in interest rates. 
C) equally responsive to changes in income and to changes in interest rates. 
D) dependent only on changes in interest rates.

Question 17

Keynes believed that saving is more responsive to changes in income than to changes in interest rates.

Accepted Answer

A) True 
 B)False

Question 18

When the MPC = 0.9,the multiplier is

Accepted Answer

A) 0.20. 
B) 1.25. 
C) 2.50. 
D) 5.00. 
E) 10.00. 
A) 0.20. 
B) 1.25. 
C) 2.50. 
D) 5.00. 
E) 10.00.

Question 19

In the simple Keynesian model,a rightward shift in the aggregate demand curve __________ result in a change in the price level when the economy is in the horizontal segment of the AS curve and ___________ result in a change in the price level if the economy is in the vertical segment of the AS curve.

Accepted Answer

A) will not;will 
B) will not;will not 
C) will;will not 
D) will;will 
A) will not;will 
B) will not;will not 
C) will;will not 
D) will;will

Question 20

Exhibit 10-1  
-Refer to Exhibit 10-1.Equilibrium Real GDP occurs at

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) Q1 and Q3. 
E) none of the above 
A) Q1. 
B) Q2. 
C) Q3. 
D) Q1 and Q3. 
E) none of the above

Exam 10: Keynesian Macroeconomics and Economic Instability: a Critique of the Self-Regulating Economy

Exhibit 10-4 -Refer to Exhibit 10-4.Marginal propensity to consume is equal to

According to Keynes,the private sector (by itself)

What type of relationship exists between the marginal propensity to consume (MPC)and the multiplier? Explain why this relationship exists,giving a hypothetical numerical example to help support your answer.

A change in autonomous spending leads to an even greater change in total spending through the multiplier process.

Exhibit 10-6 -Refer to Exhibit 10-6.If investment increases,it follows that

Keynes's major work,The General Theory of Employment,Interest and Money,was published during the

Autonomous spending rises by $10 billion and Real GDP rises by $50 billion.What does the marginal propensity to save equal?

According to Keynes,aggregate demand could be too low in an economy.What does this mean?

Which of the following statements would Keynes have been most likely to agree with?

If income rises from $1,000 to $1,400 and consumption rises from $1,100 to $1,440,the marginal propensity to save (MPS)is

How does the classical position on saving differ from Keynes's position?

The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result,__________ rises,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of goods and services they produce.

Keynes asserted that investment is more responsive to business expectations,technological changes and innovation,than to changes in interest rates.

Keynesian macroeconomists believe that the time it takes for falling wages and prices to eliminate a recessionary gap is __________ enough to say that the economy is __________.

A rise in MPC makes the total expenditures (TE)curve __________ and __________ the multiplier.

Keynes believed that saving is

Keynes believed that saving is more responsive to changes in income than to changes in interest rates.

When the MPC = 0.9,the multiplier is

Exhibit 10-1 -Refer to Exhibit 10-1.Equilibrium Real GDP occurs at

What Economics Is About

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The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result, rises,the curve shifts ,inventory levels unexpectedly ,and business firms __ the quantity of goods and services they produce.

Keynesian macroeconomists believe that the time it takes for falling wages and prices to eliminate a recessionary gap is enough to say that the economy is .

A rise in MPC makes the total expenditures (TE)curve and the multiplier.