Question 1

Liquidity constraints prevent people from engaging in consumption smoothing.

Accepted Answer

A) True 
 B)False

Question 2

Evidence from the effect of the 2008 Stimulus Act on consumption supports the permanent income hypothesis.

Accepted Answer

A) True 
 B)False

Question 3

The rational expectations assumption implies that anticipated tax changes have no impact on consumption at all.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that MPC = 0.7 and MPI = 0.2.According to the Keynesian multiplier,a decrease of $20 million in government purchases will

Accepted Answer

A) increase real GDP by $40 million. 
B) decrease real GDP by $40 million. 
C) increase real GDP by $100 million. 
D) decrease real GDP by $100 million. 
E) have no impact on real GDP. 
A) increase real GDP by $40 million. 
B) decrease real GDP by $40 million. 
C) increase real GDP by $100 million. 
D) decrease real GDP by $100 million. 
E) have no impact on real GDP.

Question 5

The spending multiplier is the ratio of the change in real GDP to

Accepted Answer

A) a shift in the expenditure line. 
B) a movement along the expenditure line. 
C) a shift in the 45-degree line. 
D) a change in marginal propensity to consume. 
E) a change in potential GDP. 
A) a shift in the expenditure line. 
B) a movement along the expenditure line. 
C) a shift in the 45-degree line. 
D) a change in marginal propensity to consume. 
E) a change in potential GDP.

Question 6

The forward-looking model implies that the Keynesian multiplier is greater for a temporary tax cut than a permanent tax cut.

Accepted Answer

A) True 
 B)False

Question 7

The forward-looking model predicts that the marginal propensity to consume is constant over time.

Accepted Answer

A) True 
 B)False

Question 8

The forward-looking consumption model assumes that people make consumption decisions based on

Accepted Answer

A) their mood. 
B) their current income. 
C) their anticipation of their future income. 
D) their income taxes in the current year. 
E) their perceptions of other people's behavior. 
A) their mood. 
B) their current income. 
C) their anticipation of their future income. 
D) their income taxes in the current year. 
E) their perceptions of other people's behavior.

Exam 37: Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

Liquidity constraints prevent people from engaging in consumption smoothing.

Evidence from the effect of the 2008 Stimulus Act on consumption supports the permanent income hypothesis.

The rational expectations assumption implies that anticipated tax changes have no impact on consumption at all.

Suppose that MPC = 0.7 and MPI = 0.2.According to the Keynesian multiplier,a decrease of $20 million in government purchases will

The spending multiplier is the ratio of the change in real GDP to

The forward-looking model implies that the Keynesian multiplier is greater for a temporary tax cut than a permanent tax cut.

The forward-looking model predicts that the marginal propensity to consume is constant over time.

The forward-looking consumption model assumes that people make consumption decisions based on

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, transfers, and Income Distribution

Public Goods, externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Filters