Question 1

According to Keynes,the economy is inherently unstable and may get stuck in a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is a characteristic of consumption according to Keynes?

Accepted Answer

A) consumption depends on disposable income 
B) consumption and disposable income have a direct relationship 
C) when disposable income changes,consumption changes by less 
D) a and c 
E) a,b,and c 
A) consumption depends on disposable income 
B) consumption and disposable income have a direct relationship 
C) when disposable income changes,consumption changes by less 
D) a and c 
E) a,b,and c

Question 3

According to the Keynesian consumption function,an increase in disposable income will result in

Accepted Answer

A) a decrease in consumption. 
B) an increase in consumption. 
C) a decrease in investment. 
D) an increase in investment. 
A) a decrease in consumption. 
B) an increase in consumption. 
C) a decrease in investment. 
D) an increase in investment.

Question 4

If an economy consumes 75 percent of any increase in disposable income,then an increase in autonomous investment of $1 billion could result in an increase in total spending of as much as

Accepted Answer

A) $1.0 billion.. 
B) $4.0 billion. 
C) $5.0 billion. 
D) $1.8 billion. 
E) $6.0 billion. 
A) $1.0 billion.. 
B) $4.0 billion. 
C) $5.0 billion. 
D) $1.8 billion. 
E) $6.0 billion.

Question 5

The classical economists believed __________ determined savings,while Keynes said it was __________.

Accepted Answer

A) interest rates;income 
B) income;investment 
C) investment;interest rates 
D) interest rates;investment 
A) interest rates;income 
B) income;investment 
C) investment;interest rates 
D) interest rates;investment

Question 6

If consumption is $1,230 when disposable income is $1,420,and consumption is $1,400 when disposable income is $1,620,then the marginal propensity to consume (MPC)is

Accepted Answer

A) 1.15. 
B) 0.15. 
C) 6.67. 
D) 0.85. 
A) 1.15. 
B) 0.15. 
C) 6.67. 
D) 0.85.

Question 7

A simple Keynesian model is representative of a closed economy,with no foreign sector.

Accepted Answer

A) True 
 B)False

Question 8

When total expenditures are greater than total production,__________ is produced than households want to buy,which leads to __________ in inventory,which signals firms that they have __________,which causes firms to increase production.

Accepted Answer

A) less;decreases;underproduced 
B) more;increases;underproduced 
C) less;increases;underproduced 
D) more;decreases;overproduced 
A) less;decreases;underproduced 
B) more;increases;underproduced 
C) less;increases;underproduced 
D) more;decreases;overproduced

Question 9

In a recessionary gap,the implications of downward wage inflexibility are that there will be

Accepted Answer

A) further leftward shifts of AD that worsen unemployment. 
B) no further leftward shifts of AD,allowing the shifts in SRAS to close the recessionary gap. 
C) no further leftward shifts of SRAS,allowing the shifts in AD to close the recessionary gap. 
D) no rightward shifts of SRAS,allowing for the possibility of persistent high unemployment. 
A) further leftward shifts of AD that worsen unemployment. 
B) no further leftward shifts of AD,allowing the shifts in SRAS to close the recessionary gap. 
C) no further leftward shifts of SRAS,allowing the shifts in AD to close the recessionary gap. 
D) no rightward shifts of SRAS,allowing for the possibility of persistent high unemployment.

Question 10

Exhibit 10-5  
-Refer to Exhibit 10-5.When TE is $700 billion,what will firms most likely do next?

Accepted Answer

A) Firms will increase production to increase inventories to their optimum levels. 
B) Firms will neither increase nor decrease production since the economy is in equilibrium. 
C) Firms will cut back production to reduce inventories to their optimum levels. 
D) It is impossible to determine what firms are likely to do based on this information. 
A) Firms will increase production to increase inventories to their optimum levels. 
B) Firms will neither increase nor decrease production since the economy is in equilibrium. 
C) Firms will cut back production to reduce inventories to their optimum levels. 
D) It is impossible to determine what firms are likely to do based on this information.

Question 11

Exhibit 10-5  
-Refer to Exhibit 10-5.When TE is $300 billion,what happens to inventories?

Accepted Answer

A) Inventories are at their optimum levels. 
B) Inventories will fall,then rise above their optimum levels. 
C) Inventories will fall below optimum levels. 
D) Inventories will rise above optimum levels. 
A) Inventories are at their optimum levels. 
B) Inventories will fall,then rise above their optimum levels. 
C) Inventories will fall below optimum levels. 
D) Inventories will rise above optimum levels.

Question 12

Inventory levels unexpectedly rise and as a result firms reduce the level of production.Which of the following is consistent with these two occurrences?

Accepted Answer

A) TP is greater than TE. 
B) TP is less than TE. 
C) TP is equal to TE. 
D) TP is equal to TE minus the rise in inventories above the optimum inventory level. 
E) none of the above 
A) TP is greater than TE. 
B) TP is less than TE. 
C) TP is equal to TE. 
D) TP is equal to TE minus the rise in inventories above the optimum inventory level. 
E) none of the above

Question 13

Explain the sequence of events that occurs in the economy once total production (TP)is less than total expenditure (TE).

Accepted Answer

If TP is less than TE,it indicates that

Question 14

In reality,idle resources must exist in the economy in order for the multiplier process to lead to an increase in Real GDP.

Accepted Answer

A) True 
 B)False

Question 15

A consumption function is a statement that shows the relationship between interest rates and consumption.

Accepted Answer

A) True 
 B)False

Question 16

As portrayed in terms of total expenditures (TE)and total production (TP),discuss at least three assumptions that sum up the workings of the simple Keynesian model.

Accepted Answer

The simple Keynesian model can be summar

Question 17

Exhibit 10-4  
-Refer to Exhibit 10-4.If the present level of disposable income is Yd1,autonomous consumption is equal to

Accepted Answer

A) C0. 
B) C1. 
C) C2. 
D) C1 - C0. 
E) C2 - C1. 
A) C0. 
B) C1. 
C) C2. 
D) C1 - C0. 
E) C2 - C1.

Question 18

Exhibit 10-2  
-Refer to Exhibit 10-2.Which of the following is correct about point M?

Accepted Answer

A) TE is $4,500 billion and TP is only $1,500 billion. 
B) TP is $4,500 billion and TE is only $1,500 billion. 
C) TE is $7,500 and TP is only $5,500 billion. 
D) TP is only $7,500 billion and TE is only $5,500 billion. 
E) TE is $3,000 billion and TP is only $1,500 billion. 
A) TE is $4,500 billion and TP is only $1,500 billion. 
B) TP is $4,500 billion and TE is only $1,500 billion. 
C) TE is $7,500 and TP is only $5,500 billion. 
D) TP is only $7,500 billion and TE is only $5,500 billion. 
E) TE is $3,000 billion and TP is only $1,500 billion.

Question 19

If the multiplier is 5,then the MPC must be

Accepted Answer

A) 1/5. 
B) 1/6. 
C) 3/4. 
D) 4/5. 
E) 2/3. 
A) 1/5. 
B) 1/6. 
C) 3/4. 
D) 4/5. 
E) 2/3.

Question 20

In the simple Keynesian model,there are three simplifying assumptions.Among these assumptions is:

Accepted Answer

A) the price level is flexible 
B) no foreign sector 
C) the price level is constant until the economy reaches its full-employment level 
D) the money supply always rises 
E) b and c 
A) the price level is flexible 
B) no foreign sector 
C) the price level is constant until the economy reaches its full-employment level 
D) the money supply always rises 
E) b and c

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

According to Keynes,the economy is inherently unstable and may get stuck in a recessionary gap.

Which of the following is a characteristic of consumption according to Keynes?

According to the Keynesian consumption function,an increase in disposable income will result in

If an economy consumes 75 percent of any increase in disposable income,then an increase in autonomous investment of $1 billion could result in an increase in total spending of as much as

The classical economists believed __________ determined savings,while Keynes said it was __________.

If consumption is $1,230 when disposable income is $1,420,and consumption is $1,400 when disposable income is $1,620,then the marginal propensity to consume (MPC)is

A simple Keynesian model is representative of a closed economy,with no foreign sector.

When total expenditures are greater than total production,__________ is produced than households want to buy,which leads to __________ in inventory,which signals firms that they have __________,which causes firms to increase production.

In a recessionary gap,the implications of downward wage inflexibility are that there will be

Exhibit 10-5 -Refer to Exhibit 10-5.When TE is $700 billion,what will firms most likely do next?

Exhibit 10-5 -Refer to Exhibit 10-5.When TE is $300 billion,what happens to inventories?

Inventory levels unexpectedly rise and as a result firms reduce the level of production.Which of the following is consistent with these two occurrences?

Explain the sequence of events that occurs in the economy once total production (TP)is less than total expenditure (TE).

In reality,idle resources must exist in the economy in order for the multiplier process to lead to an increase in Real GDP.

A consumption function is a statement that shows the relationship between interest rates and consumption.

As portrayed in terms of total expenditures (TE)and total production (TP),discuss at least three assumptions that sum up the workings of the simple Keynesian model.

Exhibit 10-4 -Refer to Exhibit 10-4.If the present level of disposable income is Yd1,autonomous consumption is equal to

Exhibit 10-2 -Refer to Exhibit 10-2.Which of the following is correct about point M?

If the multiplier is 5,then the MPC must be

In the simple Keynesian model,there are three simplifying assumptions.Among these assumptions is:

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, controlled, and Relative

Supply,demand,and Price: Applications

Macroeconomic Measurements, part I: Prices and Unemployment

Macroeconomic Measurements, part II: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money,banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, technology, ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case for and Against Government: Five Topics Considered

Stocks, bonds, futures, and Options

Filters

The classical economists believed determined savings,while Keynes said it was .

When total expenditures are greater than total production, is produced than households want to buy,which leads to in inventory,which signals firms that they have __,which causes firms to increase production.

Exhibit 10-4 -Refer to Exhibit 10-4.If the present level of disposable income is Yd₁,autonomous consumption is equal to