Question 1

If the marginal propensity to consume (MPC)rises,the multiplier:

Accepted Answer

A)  also rises. 
B)  falls. 
C)  stays the same. 
D)  rises or falls,depending on the size of the increase in the MPC.

Question 2

Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9.Which of the following statements is correct?

Accepted Answer

A)  A small increase in spending will have a more powerful effect in starting a recovery in the United States than in Japan. 
B)  The Japanese economy is not in equilibrium. 
C)  The Japanese economy is more susceptible to a recession caused by a drop in spending. 
D)  The U.S.economy tends to overheat from too much spending.

Question 3

In an economy with three sectors (household,business,and government),government spending is $5 billion,taxes are $4 billion,and investment is $4 billion.If the economy is in equilibrium,then saving is:

Accepted Answer

A)  $1 billion. 
B)  $4 billion. 
C)  $5 billion. 
D)  $9 billion.

Question 4

Assume that the MPC is 0.8.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.The government is committed to a balanced budget.To achieve full employment,the government should _______ taxes by ____________ and increase government spending by ________.

Accepted Answer

A)  increase;$100 billion;$100 billion 
B)  increase;$20 billion;$100 billion 
C)  increase;$25 billion;$100 billion 
D)  reduce;$100 billion;$100 billion

Question 5

In the simple Keynesian model,the only two things you can do with your income are:

Accepted Answer

A)  pay taxes and spend it. 
B)  spend it and save it. 
C)  spend it and invest it. 
D)  save it and give it.

Question 6

Analyze savings using the average propensity to save (APS)and the marginal propensity to save (MPS).Support your response with numerical examples.

Accepted Answer

The answer of Analyze savings using the average propensity to...

Question 7

Explain the multiplier process,how it is computed,and why it operates in both directions.Support your response with formulas and an example.

Accepted Answer

The answer of Explain the multiplier process,how it is computed,and...

Question 8

How does the simple Keynesian model differ from the classical approach to analyzing saving?

Accepted Answer

The answer of How does the simple Keynesian model differ...

Question 9

In Keynesian macroeconomic equilibrium,AE = Y and C = S.

Accepted Answer

A) True 
 B)False

Question 10

(Figure: Consumption Spending)  At point A:

Accepted Answer

A)  saving is $20. 
B)  consumption is zero. 
C)  saving is zero. 
D)  consumption exceeds income by $20.

Question 11

In the nation of Economia,the economy is overheating and there is danger of inflation.The chief economist estimates that current income is $50 billion,while the optimal level is $40 billion.The multiplier is 4.If government wants to close the inflationary gap,it should reduce government spending by:

Accepted Answer

A)  $10 billion. 
B)  $7.5 billion. 
C)  $40 billion. 
D)  $2.5 billion.

Question 12

(Table)The table that follows shows the data for Keynesland.
Income
Aggregate Expenditures
$0
$100
$100
$150
$200
$200
$300
$250
$400
$300
$500
$350
$600
$400
Plot the data on an aggregate expenditure schedule.Suppose a housing boom causes consumption spending to rise by $100 at all levels.Graph the new aggregate expenditure schedule.By how much would equilibrium income rise? What is the value of the multiplier?

Accepted Answer

The answer of (Table)The table that follows shows the data...

Question 13

Investment is defined as spending by:

Accepted Answer

A)  investors in the stock market. 
B)  investors in the bond market. 
C)  business that adds to the productive capacity of the economy. 
D)  households on home maintenance.

Question 14

In the Keynesian aggregate expenditure model,prices are assumed to be fixed because resources are idle (underutilized).

Accepted Answer

A) True 
 B)False

Question 15

The largest component of aggregate expenditures is:

Accepted Answer

A)  investment spending. 
B)  saving. 
C)  government spending. 
D)  consumption spending.

Question 16

Classical economists claim that ______ is the primary determinant of saving,and Keynes claimed that ______ is the primary determinant of saving.

Accepted Answer

A)  the interest rate;income 
B)  income;the interest rate 
C)  taxes;government spending 
D)  GDP;disposable income

Question 17

If aggregate expenditures are less than current output:

Accepted Answer

A)  businesses will cut back on output. 
B)  businesses will produce more. 
C)  employment levels will rise. 
D)  inflation results.

Question 18

Adding the investment schedule to the consumption schedule changes the marginal propensity to consume.

Accepted Answer

A) True 
 B)False

Question 19

Equilibrium income is reached when injections equal withdrawals.

Accepted Answer

A) True 
 B)False

Question 20

Analyze consumption by comparing the average propensity to consume (APC)with the marginal propensity to consume (MPC),using numerical examples to support your response.Is either APC or MPC consistent with Keynes's psychological law?

Accepted Answer

The answer of Analyze consumption by comparing the average propensity...

Exam 8: Aggregate Expenditures

If the marginal propensity to consume (MPC) rises,the multiplier:

Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9.Which of the following statements is correct?

In an economy with three sectors (household,business,and government) ,government spending is $5 billion,taxes are $4 billion,and investment is $4 billion.If the economy is in equilibrium,then saving is:

Assume that the MPC is 0.8.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.The government is committed to a balanced budget.To achieve full employment,the government should _ taxes by and increase government spending by __.

In the simple Keynesian model,the only two things you can do with your income are:

Analyze savings using the average propensity to save (APS)and the marginal propensity to save (MPS).Support your response with numerical examples.

Explain the multiplier process,how it is computed,and why it operates in both directions.Support your response with formulas and an example.

How does the simple Keynesian model differ from the classical approach to analyzing saving?

In Keynesian macroeconomic equilibrium,AE = Y and C = S.

(Figure: Consumption Spending) At point A:

In the nation of Economia,the economy is overheating and there is danger of inflation.The chief economist estimates that current income is $50 billion,while the optimal level is $40 billion.The multiplier is 4.If government wants to close the inflationary gap,it should reduce government spending by:

Investment is defined as spending by:

In the Keynesian aggregate expenditure model,prices are assumed to be fixed because resources are idle (underutilized).

The largest component of aggregate expenditures is:

Classical economists claim that is the primary determinant of saving,and Keynes claimed that is the primary determinant of saving.

If aggregate expenditures are less than current output:

Adding the investment schedule to the consumption schedule changes the marginal propensity to consume.

Equilibrium income is reached when injections equal withdrawals.

Analyze consumption by comparing the average propensity to consume (APC)with the marginal propensity to consume (MPC),using numerical examples to support your response.Is either APC or MPC consistent with Keynes's psychological law?