129. According to Keynes, the private sector (by itself)
a.
can always move the economy out of a recessionary gap in a timely manner.
b.
cannot always move the economy out of a recessionary gap in a timely manner.
c.
can never move the economy out of a recessionary gap.
d.
can only move the economy out of a recessionary gap if the SRAS curve drops.
e.
can only move the economy out of a recessionary gap if the SRAS curve rises.
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130. Given that the economy is operating in the horizontal section of the aggregate supply curve in the simple Keynesian
model, an increase in autonomous spending will ____________________ (assuming that the economy remains in the
horizontal section of the aggregate supply curve).
a.
increase Real GDP and raise the price level
b.
decrease Real GDP and raise the price level
c.
increase Real GDP and leave the price level unchanged
d.
increase Real GDP and lower the price level
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131. Suppose the multiplier is 4. ceteris paribus, a change in autonomous spending will change total spending more if the
aggregate supply curve is __________ than if it is __________.
a.
horizontal; upward sloping
b.
upward sloping; horizontal
c.
upward sloping; downward sloping
d.
downward sloping; upward sloping
e.
There is not enough information to answer the question.
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132. John Maynard Keynes was a very famous economist from
a.
the United States.
b.
England.
c.
Germany.
d.
Ireland.
b
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133. The more nearly horizontal the aggregate supply curve, the
a.
b.
c.
d.
e.
1
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134. In the simple Keynesian model, there are three simplifying assumptions. One of these assumptions is:
a.
no consumption
b.
no investment
c.
no exports or imports
d.
a and b
e.
a, b, and c
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135. In the simple Keynesian model, there are three simplifying assumptions. Among these assumptions is:
a.
the price level is flexible
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b.
no foreign sector
c.
the price level is constant until the economy reaches its full-employment level
d.
the money supply always rises
e.
b and c
Exhibit 10-6
136. Refer to Exhibit 10-6. Which of the following is consistent with the economy producing Q2?
a.
Total expenditures (TE) is less than total production (TP).
b.
Firms are currently holding their optimum inventory levels.
c.
Autonomous spending is greater than zero.
d.
Total expenditures (TE) are equal to total production (TP).
e.
none of the above
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137. Refer to Exhibit 10-6. If government purchases decrease, it follows that
a.
the TE curve will shift upward, possibly passing through point 2.
b.
the TE curve will shift downward, possibly passing through point 3.
c.
the TE curve will not change but the economy will move from point 1 to point 3.
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d.
the TE curve will not change but the economy will move from point 1 to point 2.
e.
At the new equilibrium position, Real GDP will necessarily be Q3.
138. Refer to Exhibit 10-6. If investment increases, it follows that
a.
the TE curve will shift upward, possibly passing through point 2.
b.
the TE curve will shift downward, possibly passing through point 3.
c.
the TE curve will not change but the economy will move from point 1 to point 3.
d.
the TE curve will not change but the economy will move from point 1 to point 2.
e.
At the new equilibrium position, Real GDP will necessarily be Q1.
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139. Refer to Exhibit 10-6. If total production (TP) is greater than total expenditures (TE), the economy is currently
producing a level of Real GDP that is
a.
equal to or lower than Q3.
b.
equal to or greater than Q3.
c.
less than Q2.
d.
between Q2 and Q1.
e.
greater than Q3.
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140. John Maynard Keynes was the son of
a.
one of the first female students to attend Cambridge University.
b.
Russian ballerina Lydia Lopokova.
c.
the mayor of London.
d.
an eminent economist.
e.
a and d
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141. If Keynes’s theory is correct, wage rates may be _______________ in a _____________ direction which means that
the __________ curve will not shift to the __________ to remove the economy from a recessionary gap as it would in a
self-regulating economy.
a.
inflexible; downward; AD; right
b.
flexible; upward; SRAS; right
c.
flexible; downward; AD; right
d.
inflexible; upward; SRAS; left
e.
inflexible; downward; SRAS; right
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142. Most economists think that the Keynesian position is that
a.
the wage rate will never fall and the price level will never adjust downward if the economy is in a recessionary
gap.
b.
the time required before wages and prices adjust downward is short enough for the economy to be called self–
regulating.
c.
the time required before wages and prices adjust downward is long enough for the economy to exist in a
recessionary gap for a long time.
d.
the time required before wages and prices adjust downward if the economy is in a recessionary gap is rather
long, but short enough for the economy to be considered self-regulating.
1
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143. Which of the following is a characteristic of consumption according to Keynes?
a.
consumption depends on disposable income
b.
consumption and disposable income have a direct relationship
c.
when disposable income changes, consumption changes by less
d.
a and c
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e.
a, b, and c
144. Refer to Exhibit 10-7. If autonomous consumption increases, which of the following is possible?
a.
The AD curve will shift rightward from AD1 to AD2, the price level will remain constant, and Real GDP will
rise.
b.
The AD curve will shift leftward from AD4 to AD3, the price level will fall, and Real GDP will remain
constant.
c.
The AD curve will shift rightward from AD3 to AD4, the price level will remain constant, and Real GDP will
rise.
d.
The AD curve will shift rightward from AD1 to AD2, the price level will rise, and Real GDP will remain
constant.
1
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145. Refer to Exhibit 10-7. If investment decreases, which of the following is possible?
a.
The AD curve shifts leftward from AD2 to AD1, the price level falls, and Real GDP remains constant.
b.
The AD curve shifts leftward from AD4 to AD3, the price level falls, and Real GDP remains constant.
1
Easy
c.
The AD curve shifts rightward from AD1 to AD2, the price level remains constant, and Real GDP rises.
d.
The AD curve shifts rightward from AD3 to AD4, the price level rises, and Real GDP remains constant.
e.
c and d
146. Refer to Exhibit 10-7. If government purchases decrease, which of the following is possible?
a.
The AD curve shifts leftward from AD2 to AD1, the price level remains constant, and Real GDP falls.
b.
The AD curve shifts leftward from AD4 to AD3, the price level falls, and Real GDP remains constant.
c.
The AD curve shifts rightward from AD1 to AD2, the price level remains constant, and Real GDP rises.
d.
The AD curve shifts rightward from AD3 to AD4, the price level rises, and Real GDP remains constant.
e.
a and b
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147. In the TE–TP framework, total production
a.
always equals total expenditures.
b.
equals Real GDP.
c.
is always greater than total expenditures.
d.
is always less than total expenditures.
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148. Here is a consumption function: C = C0 + MPC(Yd). If MPC is 0.75, then we know that
a.
as Yd rises by $1, Co rises by $0.75.
b.
as Yd rises by $1, C rises by $0.75.
c.
Yd rises by $0.75.
d.
as C0 rises by $0.75, Yd rises by $1.
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149. Here is a consumption function: C = C0 + MPC(Yd). If MPC is 0.95, then we know that
a.
as Yd rises by $1, Co rises by $0.95.
b.
as Yd rises by $1, C rises by $0.95.
c.
Yd rises by $0.95.
d.
as C0 rises by $0.05, Yd rises by $1.
b
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150. Here is a consumption function: C = C0 + MPC(Yd). If C0 = $300, then we know that
a.
if Yd rises by $1, then Co rises by $1.
b.
if Yd rises by $1, then C rises by $300.
c.
as C0 rises by $15, C rises by $15.
d.
as C0 rises by $15, Yd rises by $15.
1
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151. Here is a consumption function: C = C0 + MPC(Yd). If consumption is $2,000, MPC =0.75, and disposable income is
$2,000, what does autonomous consumption equal?
a.
$950
b.
$3,500
c.
$500
d.
$4,500
e.
none of the above
1
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152. John Maynard Keynes wrote which of the following?
a.
Das Kapital
b.
The Scope and Method of Political Economy
c.
Wealth of Nations
d.
The General Theory of Employment, Interest and Money
e.
all of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
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Exhibit 10-8
Disposable
Income
Consumption
$0
$300
500
675
1,000
1,050
1,500
1,425
2,000
1,800
2,500
2,175
3,000
2,550
153. Refer to Exhibit 10-8. The marginal propensity to consume (MPC) is
a.
0.90.
b.
0.10.
c.
0.80.
d.
0.95.
e.
0.75.
ANSWER:
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS:
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NOTES:
New
154. Refer to Exhibit 10-8. The marginal propensity to save (MPS) is
KEYWORDS:
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a.
0.90.
b.
0.10.
c.
0.75.
d.
0.25.
e.
4.00.
155. Refer to Exhibit 10-8. The multiplier is
a.
0.90.
b.
10.00.
c.
0.10.
d.
4.00.
e.
0.75.
d
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New
156. Refer to Exhibit 10-8. The consumption function is
a.
C = 0.75(Yd).
b.
C = $3,000 + 0.90(Yd).
c.
C = $300 + 0.25 (Yd).
d.
C = $300 + 0.75(Yd).
d
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New
157. Refer to Exhibit 10-8. When disposable income equals $2,000, saving equals
a.
$1,800.
b.
$2,100.
d
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New
c.
$200.
d.
-$200.
158. Refer to Exhibit 10-8. Autonomous consumption (Co) is equal to
a.
$3
b.
$30
c.
$300.
d.
$3,000.
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159. Refer to Exhibit 10-8. When disposable income equals $500, saving equals
a.
$125.
b.
$500.
c.
$175.
d.
-$175.
d
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New
Exhibit 10-9
Marginal Propensity to
Consume (MPC)
Marginal Propensity to Save
(MPS)
Multiplier (m)
0.92
(A)
(B)
(C)
(D)
10
0.85
(E)
(F)
(G)
0.20
(H)
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New
160. Refer to Exhibit 10-9. What is the value of the marginal propensity to save (MPS) that would correctly fill in blank
(A) and the multiplier that would correctly fill in blank (B)?
a.
0.20; 5
b.
0.08; 8
c.
0.08; 12.5
d.
0.05; 0.95
161. Refer to Exhibit 10-9. What is the value of the marginal propensity to consume (MPC) that would correctly fill in
blank (C) and the marginal propensity to save (MPS) that would correctly fill in blank (D)?
a.
0.90; 0.10
b.
0.10; 10
c.
0.90; 9
d.
0.01; 100
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162. Refer to Exhibit 10-9. What is the value of the marginal propensity to save (MPS) that would correctly fill in blank
(E) and the multiplier that would correctly fill in blank (F)?
a.
0.012; 0.83
b.
0.12; 88
c.
0.15; 15
d.
0.15; 6.67
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163. Refer to Exhibit 10-9. What is the value of the marginal propensity to consume (MPC) that would correctly fill in
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