Question 1

In the Keynesian aggregate expenditure model,prices are assumed to be fixed because:

Accepted Answer

A)  unemployment is low. 
B)  resources are idle (underutilized). 
C)  consumption and disposable income are closely related. 
D)  the government heavily intervenes in the economy.

Question 2

Describe macroeconomic equilibrium in the full Keynesian model,with government and the foreign sectors.Compare this description with the simple Keynesian model.

Accepted Answer

The answer of Describe macroeconomic equilibrium in the full Keynesian...

Question 3

Assume that the economy is at equilibrium at $10 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.5 trillion and imports increase by $0.7 trillion,equilibrium income will:

Accepted Answer

A)  not change. 
B)  fall by $0.2 trillion. 
C)  rise by $2 trillion. 
D)  fall by $0.8 trillion.

Question 4

Exports are ______ of spending into (from)the economy,and imports are ______ of spending into (from)the economy.

Accepted Answer

A)  injections;withdrawals 
B)  withdrawals;injections 
C)  injections;also injections 
D)  withdrawals;also withdrawals

Question 5

The recessionary gap is equal to the GDP gap divided by the multiplier.

Accepted Answer

A) True 
 B)False

Question 6

Assume that the economy is at equilibrium at $12 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.1 trillion and imports increase by $0.1 trillion,equilibrium income will:

Accepted Answer

A)  not change. 
B)  rise by $0.1 trillion. 
C)  fall by $0.1 trillion. 
D)  rise by $0.4 trillion.

Question 7

The aggregate spending exceeding the spending necessary to result in full employment is the inflationary gap.

Accepted Answer

A) True 
 B)False

Question 8

Investment spending:

Accepted Answer

A)  tends to be volatile. 
B)  is the largest component of total spending. 
C)  is not sensitive to interest rates. 
D)  is limited to the stock and bond markets.

Question 9

In the simple Keynesian model,equilibrium exists when:

Accepted Answer

A)  investment spending equals saving. 
B)  quantity supplied equals quantity demanded. 
C)  consumption equals investment. 
D)  price accepted by demanders equals price offered by suppliers.

Question 10

When the foreign sector,government spending,and taxes are added to the simple Keynesian model,at equilibrium all injections must equal all withdrawals,as stated by the equation I + G + X = S + T + M.

Accepted Answer

A) True 
 B)False

Question 11

Assume that the multiplier is 10.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.According to Keynesian macroeconomics,what should the government do to achieve full employment?

Accepted Answer

A)  increase spending by $25 billion 
B)  increase spending by $10 billion 
C)  reduce spending by $25 billion 
D)  reduce spending by $100 billion

Question 12

According to Keynesian analysis,if households intend to save more,they will:

Accepted Answer

A)  ultimately spend more. 
B)  cause jobs to increase because investment will increase. 
C)  ultimately cause job losses. 
D)  cause the GDP to increase because inflation will decrease.

Question 13

Where does equilibrium occur in the simple Keynesian model?

Accepted Answer

The answer of Where does equilibrium occur in the simple...

Question 14

If the marginal propensity to save is 0.2,how much is the spending multiplier?

Accepted Answer

A)  0.8 
B)  1.25 
C)  5 
D)  8

Question 15

Consumption spending is:

Accepted Answer

A)  spending by households,businesses,and government on all goods used up within one year. 
B)  spending by individuals and households on only nondurable goods,since they are used up quickly. 
C)  spending on goods and services by heads of households. 
D)  spending by individuals and households on both durable and nondurable goods.

Question 16

About how large was the unemployment rate during the Great Depression?

Accepted Answer

A)  15% 
B)  25% 
C)  32% 
D)  55%

Question 17

When household debt levels rise:

Accepted Answer

A)  the ability to get more credit rises. 
B)  families are less able to spend in the current period. 
C)  investment levels rise. 
D)  tax payments will be higher.

Question 18

Expectations of large increases in income lead to lower levels of consumption.

Accepted Answer

A) True 
 B)False

Question 19

The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.

Accepted Answer

A) True 
 B)False

Question 20

In the Keynesian aggregate expenditure model,which variable is assumed to be fixed?

Accepted Answer

A)  GDP 
B)  consumption 
C)  unemployment 
D)  the price level

Exam 8: Aggregate Expenditures

In the Keynesian aggregate expenditure model,prices are assumed to be fixed because:

Describe macroeconomic equilibrium in the full Keynesian model,with government and the foreign sectors.Compare this description with the simple Keynesian model.

Assume that the economy is at equilibrium at $10 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.5 trillion and imports increase by $0.7 trillion,equilibrium income will:

Exports are of spending into (from) the economy,and imports are of spending into (from) the economy.

The recessionary gap is equal to the GDP gap divided by the multiplier.

Assume that the economy is at equilibrium at $12 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.1 trillion and imports increase by $0.1 trillion,equilibrium income will:

The aggregate spending exceeding the spending necessary to result in full employment is the inflationary gap.

Investment spending:

In the simple Keynesian model,equilibrium exists when:

When the foreign sector,government spending,and taxes are added to the simple Keynesian model,at equilibrium all injections must equal all withdrawals,as stated by the equation I + G + X = S + T + M.

Assume that the multiplier is 10.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.According to Keynesian macroeconomics,what should the government do to achieve full employment?

According to Keynesian analysis,if households intend to save more,they will:

Where does equilibrium occur in the simple Keynesian model?

If the marginal propensity to save is 0.2,how much is the spending multiplier?

Consumption spending is:

About how large was the unemployment rate during the Great Depression?

When household debt levels rise:

Expectations of large increases in income lead to lower levels of consumption.

The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.

In the Keynesian aggregate expenditure model,which variable is assumed to be fixed?

Exam 8: Aggregate Expenditures

In the Keynesian aggregate expenditure model,prices are assumed to be fixed because:

Describe macroeconomic equilibrium in the full Keynesian model,with government and the foreign sectors.Compare this description with the simple Keynesian model.

Assume that the economy is at equilibrium at $10 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.5 trillion and imports increase by $0.7 trillion,equilibrium income will:

Exports are ______ of spending into (from) the economy,and imports are ______ of spending into (from) the economy.

The recessionary gap is equal to the GDP gap divided by the multiplier.

Assume that the economy is at equilibrium at $12 trillion,with a marginal propensity to consume of 0.75.If exports rise by $0.1 trillion and imports increase by $0.1 trillion,equilibrium income will:

The aggregate spending exceeding the spending necessary to result in full employment is the inflationary gap.

Investment spending:

In the simple Keynesian model,equilibrium exists when:

When the foreign sector,government spending,and taxes are added to the simple Keynesian model,at equilibrium all injections must equal all withdrawals,as stated by the equation I + G + X = S + T + M.

Assume that the multiplier is 10.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.According to Keynesian macroeconomics,what should the government do to achieve full employment?

According to Keynesian analysis,if households intend to save more,they will:

Where does equilibrium occur in the simple Keynesian model?

If the marginal propensity to save is 0.2,how much is the spending multiplier?

Consumption spending is:

About how large was the unemployment rate during the Great Depression?

When household debt levels rise:

Expectations of large increases in income lead to lower levels of consumption.

The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.

In the Keynesian aggregate expenditure model,which variable is assumed to be fixed?

Exports are of spending into (from) the economy,and imports are of spending into (from) the economy.