Question 1

Along the 45-degree line in the graph of consumption and disposable income:

Accepted Answer

A)  consumption is equal to disposable income. 
B)  consumption is equal to total saving. 
C)  consumption is equal to marginal saving. 
D)  the interest rate is zero. 
A)  consumption is equal to disposable income. 
B)  consumption is equal to total saving. 
C)  consumption is equal to marginal saving. 
D)  the interest rate is zero. A

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)  Keynesian economics is unrelated to the events of the Great Depression. 
B)  Classical economics approaches the economy as three separate but interrelated sectors,while Keynesian economics looks at the economy as a whole. 
C)  Keynesian economics was developed by the Scholastic School at Salamanca in the late medieval period. 
D)  The classical school of economics was developed during the classical age of Greece. 
A)  Keynesian economics is unrelated to the events of the Great Depression. 
B)  Classical economics approaches the economy as three separate but interrelated sectors,while Keynesian economics looks at the economy as a whole. 
C)  Keynesian economics was developed by the Scholastic School at Salamanca in the late medieval period. 
D)  The classical school of economics was developed during the classical age of Greece. B

Question 3

The recessionary gap is the increase in aggregate spending needed to bring a depressed economy back to full employment.

Accepted Answer

A) True 
 B)False  True

Question 4

If the marginal propensity to save is 0.25 and income increases by $7,540,what is the increase in consumption?

Accepted Answer

A)  $5,655 
B)  $1,885 
C)  $10,053 
D)  $30,160 
A)  $5,655 
B)  $1,885 
C)  $10,053 
D)  $30,160

Question 5

Changes in technology are a determinant of investment.

Accepted Answer

A) True 
 B)False

Question 6

The following table shows data on consumption at various levels of income. Income
Consumption
$0
$250
$500
$700
$1,000
$1,150
$1,500
$1,600
$2,000
$2,050
$2,500
$2,500
The value of the MPC is:

Accepted Answer

A)  0.25. 
B)  0.75. 
C)  0.80. 
D)  0.90. 
A)  0.25. 
B)  0.75. 
C)  0.80. 
D)  0.90.

Question 7

The larger a country's marginal propensity to consume,the lower is the value of its multiplier.

Accepted Answer

A) True 
 B)False

Question 8

The multiplier works for increases in spending but not for cuts in spending.

Accepted Answer

A) True 
 B)False

Question 9

In the simple Keynesian model the economy is in equilibrium when:

Accepted Answer

A)  Y = C + I and S  I. 
C)  Y = C + I and S = I. 
D)  Y = C and S = 0. 
A)  Y = C + I and S  I. 
C)  Y = C + I and S = I. 
D)  Y = C and S = 0.

Question 10

If the stock market collapses,consumption will:

Accepted Answer

A)  not be affected. 
B)  increase because stocks can now be purchased cheaply. 
C)  decrease because people feel less wealthy. 
D)  mildly increase. 
A)  not be affected. 
B)  increase because stocks can now be purchased cheaply. 
C)  decrease because people feel less wealthy. 
D)  mildly increase.

Question 11

The idea of the spending multiplier is that:

Accepted Answer

A)  one person's spending becomes another person's income,which stimulates more spending. 
B)  people spend money on some items,such as food and toiletries,multiple times. 
C)  people tend to spend a greater amount (a multiple)in stores than they originally intend. 
D)  when a person saves money in a bank,the bank lends it out to another person to be spent. 
A)  one person's spending becomes another person's income,which stimulates more spending. 
B)  people spend money on some items,such as food and toiletries,multiple times. 
C)  people tend to spend a greater amount (a multiple)in stores than they originally intend. 
D)  when a person saves money in a bank,the bank lends it out to another person to be spent.

Question 12

The balanced budget multiplier does not depend on the marginal propensity to consume.

Accepted Answer

A) True 
 B)False

Question 13

What are injections and withdrawals in the simple Keynesian model? Why must they be equal at equilibrium?

Accepted Answer

The simple Keynesian model of aggregate

Question 14

In the simple Keynesian model with no government and foreign sectors,suppose that initially the economy is in equilibrium at an output of $10 trillion with a marginal propensity to consume of 0.8.If investment spending increases by $0.5 trillion,what is the new equilibrium output level?

Accepted Answer

A)  $10.5 trillion 
B)  $12.5 trillion 
C)  $12.0 trillion 
D)  $10.8 trillion 
A)  $10.5 trillion 
B)  $12.5 trillion 
C)  $12.0 trillion 
D)  $10.8 trillion

Question 15

The multiplier effect shows that a change in aggregate spending:

Accepted Answer

A)  will cause output to move in the opposite direction. 
B)  causes output to change even more than the change in aggregate spending. 
C)  causes output to change by something less than the change in aggregate spending. 
D)  leaves output unaffected. 
A)  will cause output to move in the opposite direction. 
B)  causes output to change even more than the change in aggregate spending. 
C)  causes output to change by something less than the change in aggregate spending. 
D)  leaves output unaffected.

Question 16

With respect to income,the investment schedule in the short run is:

Accepted Answer

A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  relatively elastic. 
D)  relatively inelastic. 
A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  relatively elastic. 
D)  relatively inelastic.

Question 17

What are the determinants of consumption and savings in the Keynesian model? Explain each determinant briefly.

Accepted Answer

Income is the principal determinant of c

Question 18

The balanced budget multiplier changes according to the values of marginal propensity to consume and marginal propensity to save.

Accepted Answer

A) True 
 B)False

Question 19

(Figure: Aggregate Expenditures)The figure shows the aggregate expenditures line for an economy.Which is the proper sequence of events if income was originally at $100?

Accepted Answer

A)  Total spending exceeds income;firms reduce production;workers are laid off;and incomes fall until equilibrium is reached. 
B)  Total income exceeds spending;firms expand production;workers are hired;and incomes rise until equilibrium is reached. 
C)  Total spending exceeds income;firms expand production;workers are hired;and incomes rise until equilibrium is reached. 
D)  Total income exceeds spending;firms reduce production;workers are laid off;and incomes fall until equilibrium is reached. 
A)  Total spending exceeds income;firms reduce production;workers are laid off;and incomes fall until equilibrium is reached. 
B)  Total income exceeds spending;firms expand production;workers are hired;and incomes rise until equilibrium is reached. 
C)  Total spending exceeds income;firms expand production;workers are hired;and incomes rise until equilibrium is reached. 
D)  Total income exceeds spending;firms reduce production;workers are laid off;and incomes fall until equilibrium is reached.

Question 20

Suppose the government believes consumers should spend $1 billion more to get the economy out of a recession.The government wants to provide income to households by providing them with jobs and paying them directly.If the marginal propensity to consume is 0.8,the government should increase income by:

Accepted Answer

A)  $0.8 billion 
B)  $1 billion. 
C)  $0.2 billion. 
D)  This cannot be determined with the information given. 
A)  $0.8 billion 
B)  $1 billion. 
C)  $0.2 billion. 
D)  This cannot be determined with the information given.

Along the 45-degree line in the graph of consumption and disposable income:

Which of the following statements is CORRECT?

The recessionary gap is the increase in aggregate spending needed to bring a depressed economy back to full employment.

If the marginal propensity to save is 0.25 and income increases by $7,540,what is the increase in consumption?

Changes in technology are a determinant of investment.

The following table shows data on consumption at various levels of income. Income Consumption $0 $250 $500 $700 $1,000 $1,150 $1,500 $1,600 $2,000 $2,050 $2,500 $2,500 The value of the MPC is:

The larger a country's marginal propensity to consume,the lower is the value of its multiplier.

The multiplier works for increases in spending but not for cuts in spending.

In the simple Keynesian model the economy is in equilibrium when:

If the stock market collapses,consumption will:

The idea of the spending multiplier is that:

The balanced budget multiplier does not depend on the marginal propensity to consume.

What are injections and withdrawals in the simple Keynesian model? Why must they be equal at equilibrium?

In the simple Keynesian model with no government and foreign sectors,suppose that initially the economy is in equilibrium at an output of $10 trillion with a marginal propensity to consume of 0.8.If investment spending increases by $0.5 trillion,what is the new equilibrium output level?

The multiplier effect shows that a change in aggregate spending:

With respect to income,the investment schedule in the short run is:

What are the determinants of consumption and savings in the Keynesian model? Explain each determinant briefly.

The balanced budget multiplier changes according to the values of marginal propensity to consume and marginal propensity to save.

(Figure: Aggregate Expenditures)The figure shows the aggregate expenditures line for an economy.Which is the proper sequence of events if income was originally at $100?

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomic

Filters

Exam 8: Aggregate Expenditures

Along the 45-degree line in the graph of consumption and disposable income:

Which of the following statements is CORRECT?

The recessionary gap is the increase in aggregate spending needed to bring a depressed economy back to full employment.

If the marginal propensity to save is 0.25 and income increases by $7,540,what is the increase in consumption?

Changes in technology are a determinant of investment.

The following table shows data on consumption at various levels of income. Income Consumption $0 $250 $500 $700 $1,000 $1,150 $1,500 $1,600 $2,000 $2,050 $2,500 $2,500 The value of the MPC is:

The larger a country's marginal propensity to consume,the lower is the value of its multiplier.

The multiplier works for increases in spending but not for cuts in spending.

In the simple Keynesian model the economy is in equilibrium when:

If the stock market collapses,consumption will:

The idea of the spending multiplier is that:

The balanced budget multiplier does not depend on the marginal propensity to consume.

What are injections and withdrawals in the simple Keynesian model? Why must they be equal at equilibrium?

In the simple Keynesian model with no government and foreign sectors,suppose that initially the economy is in equilibrium at an output of $10 trillion with a marginal propensity to consume of 0.8.If investment spending increases by $0.5 trillion,what is the new equilibrium output level?

The multiplier effect shows that a change in aggregate spending:

With respect to income,the investment schedule in the short run is:

What are the determinants of consumption and savings in the Keynesian model? Explain each determinant briefly.

The balanced budget multiplier changes according to the values of marginal propensity to consume and marginal propensity to save.

(Figure: Aggregate Expenditures)The figure shows the aggregate expenditures line for an economy.Which is the proper sequence of events if income was originally at $100?

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomic

Filters