Question 1

The following question are based on the following rates-of-return table for five independent investment projects:
 
-If the interest rate is 7 percent,the number of projects undertaken would be

Accepted Answer

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

Question 2

The marginal propensity to consume is the

Accepted Answer

A)  fraction of an extra dollar of GDP that becomes disposable income. 
B)  share of GDP spent by households and businesses. 
C)  proportion of an extra dollar of disposable income that is spent on consumption. 
D)  reciprocal of the average propensity to consume. 
E)  fraction of disposable income that is consumed.

Question 3

The following question are based on the following consumption function for a hypothetical economy. Assume autonomous intended investment is $200 billion and there are no government expenditures, exports, or imports.
 
-The current equilibrium level of GDP is ________ billion.

Accepted Answer

A)  $2,000 
B)  $2,100 
C)  $2,200 
D)  $2,300 
E)  $2,400

Question 4

One minus the marginal propensity to consume equals

Accepted Answer

A)  the average propensity to consume. 
B)  the multiplier. 
C)  the marginal propensity to save. 
D)  the expected rate of return. 
E)  disposable income.

Question 5

John Maynard Keynes shocked the economic world with his theory that the Great Depression could continue in a never-ending downward spiral unless government intervened.According to Keynes,the reason the economy could NOT pull itself out of the Depression was that

Accepted Answer

A)  the government continued to insist on high tax rates. 
B)  price controls precluded business expansion. 
C)  we no longer had a balanced budget. 
D)  the lack of income had reduced aggregate demand. 
E)  wages and prices were much too flexible.

Question 6

The following question are based on the following information:
 
-When the total amount spent on final goods and services falls short of the total value of final goods and services produced

Accepted Answer

A)  expected rates of return on investment must rise. 
B)  the economy is in equilibrium. 
C)  households must not be saving. 
D)  firms accumulate unwanted inventories. 
E)  intended investment is negative.

Question 7

The following question are based on the following information:
 
-If intended spending is greater than GDP

Accepted Answer

A)  firms will experience unexpected increases in their planned inventory levels. 
B)  consumption expenditures must be greater than disposable income. 
C)  firms will attempt to increase production. 
D)  GDP will fall. 
E)  the economy is in declining equilibrium.

Question 8

In national output determination theory,personal consumption expenditures depend primarily on

Accepted Answer

A)  the amount of net investment. 
B)  the expected rate of return. 
C)  disposable income. 
D)  the difference between the average and marginal propensities to consume. 
E)  the aggregate demand curve.

Question 9

A change in investment spending NOT caused by a change in income or GDP is a(n)________ change.

Accepted Answer

A)  induced 
B)  obscure 
C)  identical 
D)  autonomous 
E)  hypothetical

Question 10

An upward shift in the saving function

Accepted Answer

A)  will cause GDP to rise. 
B)  will have the same effect on GDP as an upward movement along the saving function. 
C)  means that, at any given level of income, people want to save less. 
D)  will cause GDP to fall by an amount equal to the shift divided by the marginal propensity to save. 
E)  means that the marginal propensity to save must have fallen.

Question 11

If an economy is operating at a point on the C + I line that lies above the 45-degree line

Accepted Answer

A)  the economy is in equilibrium. 
B)  the C + I line shifts down. 
C)  GDP will rise. 
D)  unwanted inventories will accumulate. 
E)  intended saving equals intended investment.

Question 12

The additional amount a family spends on consumption from an additional dollar of disposable income is called the

Accepted Answer

A)  saving function. 
B)  marginal propensity to save. 
C)  multiplier. 
D)  marginal propensity to consume. 
E)  average propensity to consume.

Question 13

GDP is at the equilibrium level when

Accepted Answer

A)  total intended household spending equals business spending. 
B)  it is at full-employment level. 
C)  the rate of inflation equals the rate of unemployment. 
D)  any further increases in intended spending increase the price level. 
E)  it equals the amount of intended spending.

Question 14

The relationship between household spending and disposable income is known as the

Accepted Answer

A)  investment function. 
B)  multiplier. 
C)  gross domestic product. 
D)  consumption function. 
E)  saving function.

Question 15

The reciprocal of the marginal propensity to save is called the

Accepted Answer

A)  multiplier. 
B)  propensity to consume. 
C)  saving function. 
D)  45-degree line. 
E)  interest rate.

Exam 17: The Determination of National Output and the Keynesian Multiplier

The following question are based on the following rates-of-return table for five independent investment projects: -If the interest rate is 7 percent,the number of projects undertaken would be