Question 1

When taxes are decreased,disposable income _______ and consumption spending ______________ multiplied by the change in disposable income.

Accepted Answer

A)  rises;rises by the marginal propensity to consume 
B)  falls;falls by the marginal propensity to consume 
C)  rises;falls by the marginal propensity to consume 
D)  falls;rises by the marginal propensity to consume 
A)  rises;rises by the marginal propensity to consume 
B)  falls;falls by the marginal propensity to consume 
C)  rises;falls by the marginal propensity to consume 
D)  falls;rises by the marginal propensity to consume

Question 2

The GDP gap divided by the multiplier yields the:

Accepted Answer

A)  optimal level of government spending. 
B)  inflationary or recessionary gap. 
C)  equilibrium level of injections and withdrawals. 
D)  full-employment level of income. 
A)  optimal level of government spending. 
B)  inflationary or recessionary gap. 
C)  equilibrium level of injections and withdrawals. 
D)  full-employment level of income.

Question 3

If the marginal propensity to consume is 0.9,what is the size of the multiplier?

Accepted Answer

A)  9 
B)  0.1 
C)  1 
D)  10 
A)  9 
B)  0.1 
C)  1 
D)  10

Question 4

If income is $3,000 and savings is $300,the average propensity to save is 0.01.

Accepted Answer

A) True 
 B)False

Question 5

A tax decrease has more of an impact on income,employment,and output than does an equivalent increase in government spending.

Accepted Answer

A) True 
 B)False

Question 6

The reason business investment is sensitive to interest rates is that:

Accepted Answer

A)  interest rates are a lagging indicator,so they signal to firms the state of the economy. 
B)  most funds used for investment are borrowed,so firms incur an interest charge. 
C)  interest rates indicate how aggressive government policy is about fighting recessions. 
D)  firms charge interest on any investment they make. 
A)  interest rates are a lagging indicator,so they signal to firms the state of the economy. 
B)  most funds used for investment are borrowed,so firms incur an interest charge. 
C)  interest rates indicate how aggressive government policy is about fighting recessions. 
D)  firms charge interest on any investment they make.

Question 7

The marginal propensity to consume is equal to the change in consumption divided by the change in income.

Accepted Answer

A) True 
 B)False

Question 8

In both the simple Keynesian model and the full Keynesian model,the sum of injections of spending must equal the sum of withdrawals at equilibrium.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following equations is NOT true at equilibrium in the simple Keynesian model?

Accepted Answer

A)  I = S 
B)  AE > Y 
C)  Y = C + S 
D)  AE = C + I 
A)  I = S 
B)  AE > Y 
C)  Y = C + S 
D)  AE = C + I

Question 10

If the marginal propensity to consume is 0.6,the marginal propensity to save is 0.4,and government spending increases by $2 billion at the same time taxes rise by $2 billion,equilibrium income will:

Accepted Answer

A)  rise by $2 billion. 
B)  not change. 
C)  fall by $2 billion. 
D)  rise by $5 billion. 
A)  rise by $2 billion. 
B)  not change. 
C)  fall by $2 billion. 
D)  rise by $5 billion.

Question 11

(Table)In the table,the marginal propensity to consume is ________ and the average propensity to consume ________. Income
Consumption Spending
Saving
$30,000
$30,000
$0
40,000
35,000
5,000
50,000
40,000
10,000

Accepted Answer

A)  0.5;varies with the level of income 
B)  $5,000;is $5,000 
C)  $10,000;is $35,000 
D)  2;varies with the level of income 
A)  0.5;varies with the level of income 
B)  $5,000;is $5,000 
C)  $10,000;is $35,000 
D)  2;varies with the level of income

Question 12

Use the following to answer questions 
Figure: Savings,Investment,and Aggregate Expenditures  
-(Figure: Savings,Investment,and Aggregate Expenditures)Income and output are at equilibrium at point:

Accepted Answer

A)  b. 
B)  c. 
C)  d. 
D)  e. 
A)  b. 
B)  c. 
C)  d. 
D)  e.

Question 13

The paradox of thrift suggests that when households intend to save more,they will ________ consumption,which will ultimately lead to ____________ actual aggregate saving.

Accepted Answer

A)  reduce;lower 
B)  reduce;higher 
C)  increase;lower 
D)  increase;higher 
A)  reduce;lower 
B)  reduce;higher 
C)  increase;lower 
D)  increase;higher

Question 14

The paradox of thrift is that if everyone tries to save more,in the aggregate they might just save less.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following equations is correct?

Accepted Answer

A)  AE = C - I + G + (X + M) 
B)  AE = C + I + G + (X - M) 
C)  AE = C + I - G + (X - M) 
D)  AE = C - I + G - (X + M) 
A)  AE = C - I + G + (X + M) 
B)  AE = C + I + G + (X - M) 
C)  AE = C + I - G + (X - M) 
D)  AE = C - I + G - (X + M)

Question 16

In 2008-2009,the falling stock market reduced wealth of U.S.households,causing the United States:

Accepted Answer

A)  to move down along its consumption schedule. 
B)  to shift its consumption schedule downward. 
C)  to move up along its consumption schedule. 
D)  to shift its consumption schedule upward. 
A)  to move down along its consumption schedule. 
B)  to shift its consumption schedule downward. 
C)  to move up along its consumption schedule. 
D)  to shift its consumption schedule upward.

Question 17

Which of the following is FALSE regarding the Keynesian model?

Accepted Answer

A)  Aggregate expenditures can be expressed as C + I + G + (X - M). 
B)  GDP can be measured as the sum of all spending. 
C)  The four main types of spending are consumer,investment,government,and net exports. 
D)  Aggregate spending is always less than aggregate income. 
A)  Aggregate expenditures can be expressed as C + I + G + (X - M). 
B)  GDP can be measured as the sum of all spending. 
C)  The four main types of spending are consumer,investment,government,and net exports. 
D)  Aggregate spending is always less than aggregate income.

Question 18

Disposable income equals income minus government spending.

Accepted Answer

A) True 
 B)False

Question 19

The marginal propensity to consume:

Accepted Answer

A)  increases when income increases. 
B)  is the change in consumption associated with a change in income. 
C)  is equal to consumption divided by income. 
D)  decreases when income increases. 
A)  increases when income increases. 
B)  is the change in consumption associated with a change in income. 
C)  is equal to consumption divided by income. 
D)  decreases when income increases.

Question 20

Suppose the government is mandated by law to have a balanced budget.The marginal propensity to consume is 0.9.The government raises both taxes and spending by $10 billion.According to the notion of the balanced budget multiplier:

Accepted Answer

A)  there is no effect on the economy,because the tax and spending increases cancel each other out. 
B)  income rises by $10 billion,because taxes reduce spending by $90 billion and government spending raises total spending by $100 billion. 
C)  income falls by $10 billion,because taxes reduce spending by $100 billion and government spending raises total spending by $90 billion. 
D)  the final effect cannot be determined using the simple Keynesian framework because the impact on prices is not known. 
A)  there is no effect on the economy,because the tax and spending increases cancel each other out. 
B)  income rises by $10 billion,because taxes reduce spending by $90 billion and government spending raises total spending by $100 billion. 
C)  income falls by $10 billion,because taxes reduce spending by $100 billion and government spending raises total spending by $90 billion. 
D)  the final effect cannot be determined using the simple Keynesian framework because the impact on prices is not known.

When taxes are decreased,disposable income _ and consumption spending ________ multiplied by the change in disposable income.

The GDP gap divided by the multiplier yields the:

If the marginal propensity to consume is 0.9,what is the size of the multiplier?

If income is $3,000 and savings is $300,the average propensity to save is 0.01.

A tax decrease has more of an impact on income,employment,and output than does an equivalent increase in government spending.

The reason business investment is sensitive to interest rates is that:

The marginal propensity to consume is equal to the change in consumption divided by the change in income.

In both the simple Keynesian model and the full Keynesian model,the sum of injections of spending must equal the sum of withdrawals at equilibrium.

Which of the following equations is NOT true at equilibrium in the simple Keynesian model?

If the marginal propensity to consume is 0.6,the marginal propensity to save is 0.4,and government spending increases by $2 billion at the same time taxes rise by $2 billion,equilibrium income will:

(Table)In the table,the marginal propensity to consume is and the average propensity to consume . Income Consumption Spending Saving $30,000 $30,000 $0 40,000 35,000 5,000 50,000 40,000 10,000

Use the following to answer questions Figure: Savings,Investment,and Aggregate Expenditures -(Figure: Savings,Investment,and Aggregate Expenditures)Income and output are at equilibrium at point:

The paradox of thrift suggests that when households intend to save more,they will consumption,which will ultimately lead to ____ actual aggregate saving.

The paradox of thrift is that if everyone tries to save more,in the aggregate they might just save less.

Which of the following equations is correct?

In 2008-2009,the falling stock market reduced wealth of U.S.households,causing the United States:

Which of the following is FALSE regarding the Keynesian model?

Disposable income equals income minus government spending.

The marginal propensity to consume:

Suppose the government is mandated by law to have a balanced budget.The marginal propensity to consume is 0.9.The government raises both taxes and spending by $10 billion.According to the notion of the balanced budget multiplier:

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

When taxes are decreased,disposable income _______ and consumption spending ______________ multiplied by the change in disposable income.

The GDP gap divided by the multiplier yields the:

If the marginal propensity to consume is 0.9,what is the size of the multiplier?

If income is $3,000 and savings is $300,the average propensity to save is 0.01.

A tax decrease has more of an impact on income,employment,and output than does an equivalent increase in government spending.

The reason business investment is sensitive to interest rates is that:

The marginal propensity to consume is equal to the change in consumption divided by the change in income.

In both the simple Keynesian model and the full Keynesian model,the sum of injections of spending must equal the sum of withdrawals at equilibrium.

Which of the following equations is NOT true at equilibrium in the simple Keynesian model?

If the marginal propensity to consume is 0.6,the marginal propensity to save is 0.4,and government spending increases by $2 billion at the same time taxes rise by $2 billion,equilibrium income will:

(Table)In the table,the marginal propensity to consume is ________ and the average propensity to consume ________. Income Consumption Spending Saving $30,000 $30,000 $0 40,000 35,000 5,000 50,000 40,000 10,000

Use the following to answer questions Figure: Savings,Investment,and Aggregate Expenditures -(Figure: Savings,Investment,and Aggregate Expenditures)Income and output are at equilibrium at point:

The paradox of thrift suggests that when households intend to save more,they will ________ consumption,which will ultimately lead to ____________ actual aggregate saving.

The paradox of thrift is that if everyone tries to save more,in the aggregate they might just save less.

Which of the following equations is correct?

In 2008-2009,the falling stock market reduced wealth of U.S.households,causing the United States:

Which of the following is FALSE regarding the Keynesian model?

Disposable income equals income minus government spending.

The marginal propensity to consume:

Suppose the government is mandated by law to have a balanced budget.The marginal propensity to consume is 0.9.The government raises both taxes and spending by $10 billion.According to the notion of the balanced budget multiplier:

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

When taxes are decreased,disposable income _ and consumption spending ________ multiplied by the change in disposable income.

(Table)In the table,the marginal propensity to consume is and the average propensity to consume . Income Consumption Spending Saving $30,000 $30,000 $0 40,000 35,000 5,000 50,000 40,000 10,000

The paradox of thrift suggests that when households intend to save more,they will consumption,which will ultimately lead to ____ actual aggregate saving.