Question 1

In the basic Keynesian model where the marginal propensity to consume is 0.5,transfer payments must be _______,to close a recessionary gap resulting from a $1 billion decrease in autonomous consumption.

Accepted Answer

A)   increased by $1 billion
B)   decreased by $1 billion
C)   increased by $2 billion
D)   decreased by $2 billion
E)   increased by $0.5 billion

Question 2

If the marginal propensity to import (m) is greater than zero,the income-expenditure multiplier is smaller than when m is equal to zero because

Accepted Answer

A)   as income increases,some of the additional consumption expenditure will be on imported goods.
B)   as income increases,less consumption expenditure will be on imported goods.
C)   as income decreases,there will be additional consumption expenditure on imported goods.
D)   as income increases,there will be a decrease in consumption expenditure.
E)   as income increases,there will be an increase in the amount of taxes paid.

Question 3

The shift in the PAE line shown in the Keynesian cross diagram may be caused by which of the following?

Accepted Answer

A)   A decrease in government purchases.
B)   A decrease in government transfers.
C)   A decrease in autonomous consumption.
D)   A decrease in autonomous private-sector investment.
E)   An increase in the marginal propensity to consumE.

Question 4

If planned aggregate expenditure (PAE) in an economy equals 4,000 + 0.6Y and potential output (Y*) equals 9,800,taxes must be increased by ________ (rounded to the nearest whole number) to eliminate any output gap.

Accepted Answer

A)   10
B)   100
C)   1,000
D)   33
E)   133

Question 5

Suppose C = 100 + 0.8(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in autonomous consumption from 100 to 115 will result in an increase in Y (GDP) of

Accepted Answer

A)   25.
B)   35
C)   50.
D)   60.
E)   75.

Question 6

Automatic stabilizers are provisions in the law that imply automatic ________ in government spending or _________ in taxes when real output increases.

Accepted Answer

A)   increases;increases
B)   increases;decreases
C)   no change;no change
D)   decreases;decreases
E)   decreases;increases

Question 7

The four components of planned aggregate expenditure are

Accepted Answer

A)   spending on domestic goods,domestic services,foreign goods,and foreign services.
B)   spending on durable goods,inventory investment,government debt,and net exports.
C)   consumption,planned private-sector investment,government transfers,and net interest.
D)   consumption,interest payments,transfer payments,and net exports.
E)   consumption,planned private-sector investment,government purchases,and net exports.

Question 8

In the basic Keynesian model,to close an expansionary gap of $5 billion,taxes must be

Accepted Answer

A)   increased by $5 billion.
B)   decreased by $5 billion.
C)   increased by more than $5 billion.
D)   increased by less than $5 billion.
E)   decreased by less than $5 billion.

Question 9

The key assumption of the basic Keynesian model is that firms meet the demand for their products at preset prices.This means that once a firm has set the price of its product,it

Accepted Answer

A)   never changes that price.
B)   will only change the price when a customer offers to pay a different amount.
C)   will change the price infrequently.
D)   will change the price when the benefits of doing so outweigh the costs associated with making the change.
E)   will only ever decrease the price of its product.

Question 10

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional

Accepted Answer

A)   spending.
B)   autonomous planned aggregate expenditure.
C)   menu costs.
D)   cyclical unemployment.
E)   multiple decreases in autonomous spending.

Question 11

If the marginal propensity to consume is equal to 0.75,then a $100 increase in disposable income leads to a _________ increase in consumption.

Accepted Answer

A)   $0.25
B)   $0.75
C)   $25
D)   $75
E)   $100

Question 12

Dave's Mirror Company expects to sell $1,000,000 worth of mirrors and to produce $1,250,000 worth of mirrors in the coming year.The company purchases $300,000 of new equipment during the year.Sales for the year turn out to be $1,100,000.Actual investment by Dave's Mirror Company equals ________ and planned investment equals _______.

Accepted Answer

A)   $300,000;$300,000
B)   $300,000;$550,000
C)   $450,000;$450,000
D)   $450,000;$550,000
E)   $550,000;$300,000

Question 13

If planned aggregate expenditure (PAE) in an economy equals 4,000 + 0.6Y and potential output (Y*) equals 9,800,transfer payments must be decreased by ________ (rounded to the nearest whole number) to eliminate any output gap.

Accepted Answer

A)   10
B)   100
C)   1,111
D)   33
E)   133

Question 14

When actual private-sector investment is less than planned private-sector investment,

Accepted Answer

A)   firms are selling less output than expected.
B)   firms are selling more output than expected.
C)   the quantity of output sold is the amount the firm expected to sell.
D)   the economy is at short-run equilibrium.
E)   autonomous planned aggregate expenditure is less than induced planned aggregate expenditurE.

Question 15

The marginal propensity to consume is the change in consumption divided by the change in

Accepted Answer

A)   saving.
B)   investment.
C)   disposable income.
D)   debt.
E)   net exports.

Question 16

The basic Keynesian model assumes that,in the _______,producers sell whatever is demanded at _______ prices.

Accepted Answer

A)   short run;preset
B)   long run;variable
C)   long run;preset
D)   medium run;preset
E)   short run;variable

Question 17

All of the following would be included in planned aggregate expenditure EXCEPT

Accepted Answer

A)   spending on consumer durables.
B)   planned changes in inventories.
C)   sales of domestically produced goods to foreigners.
D)   interest paid on the public debt.
E)   consumer spending on services.

Question 18

The expenditure line in the Keynesian cross diagram represents the

Accepted Answer

A)   equilibrium condition that Y = PAE.
B)   relationship between planned aggregate expenditure and output.
C)   relationship between consumption and after-tax disposable income.
D)   equilibrium condition that Y = Y*.
E)   equilibrium condition that u = u*.

Question 19

Data on disposable income and consumption spending for the Adam Smith family are given below: 
Based on these data,the Adam Smith family has a marginal propensity to consume of

Accepted Answer

A)   0.9.
B)   0.8.
C)   0.75.
D)   0.6.
E)   0.5.

Question 20

In the short run,when output is less than planned aggregate expenditure,firms will

Accepted Answer

A)   reduce production expenditure.
B)   increase production.
C)   increase planned aggregate expenditure.
D)   decrease planned aggregate expenditure.
E)   reduce potential output.

Exam 8: The Reserve Bank and the Economy

When actual private-sector investment is less than planned private-sector investment,

Correct Answer
verified

Suppose C = 100 + 0.8(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in autonomous consumption from 100 to 115 will result in an increase in Y (GDP) of

Correct Answer
verified

Data on disposable income and consumption spending for the Adam Smith family are given below: Based on these data,the Adam Smith family has a marginal propensity to consume of

Correct Answer
verified

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional

Correct Answer
verified

The marginal propensity to consume is the change in consumption divided by the change in

Correct Answer
verified

Correct Answer
verified

All of the following would be included in planned aggregate expenditure EXCEPT

Correct Answer
verified

If the marginal propensity to import (m) is greater than zero,the income-expenditure multiplier is smaller than when m is equal to zero because

Correct Answer
verified

Automatic stabilizers are provisions in the law that imply automatic in government spending or _ in taxes when real output increases.

Correct Answer
verified

The four components of planned aggregate expenditure are

Correct Answer
verified

In the basic Keynesian model,to close an expansionary gap of $5 billion,taxes must be

Correct Answer
verified

In the basic Keynesian model where the marginal propensity to consume is 0.5,transfer payments must be _______,to close a recessionary gap resulting from a $1 billion decrease in autonomous consumption.

Correct Answer
verified

The expenditure line in the Keynesian cross diagram represents the

Correct Answer
verified

If planned aggregate expenditure (PAE) in an economy equals 4,000 + 0.6Y and potential output (Y*) equals 9,800,taxes must be increased by ________ (rounded to the nearest whole number) to eliminate any output gap.

Correct Answer
verified

The key assumption of the basic Keynesian model is that firms meet the demand for their products at preset prices.This means that once a firm has set the price of its product,it

Correct Answer
verified

The basic Keynesian model assumes that,in the _,producers sell whatever is demanded at _ prices.

Correct Answer
verified

If the marginal propensity to consume is equal to 0.75,then a $100 increase in disposable income leads to a _________ increase in consumption.

Correct Answer
verified

If planned aggregate expenditure (PAE) in an economy equals 4,000 + 0.6Y and potential output (Y*) equals 9,800,transfer payments must be decreased by ________ (rounded to the nearest whole number) to eliminate any output gap.

Correct Answer
verified

In the short run,when output is less than planned aggregate expenditure,firms will

Correct Answer
verified

The shift in the PAE line shown in the Keynesian cross diagram may be caused by which of the following?

Correct Answer
verified

Exam 8: The Reserve Bank and the Economy

When actual private-sector investment is less than planned private-sector investment,

Correct AnswerverifiedShow Answer

Suppose C = 100 + 0.8(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in autonomous consumption from 100 to 115 will result in an increase in Y (GDP) of

Correct AnswerverifiedShow Answer

Data on disposable income and consumption spending for the Adam Smith family are given below: Based on these data,the Adam Smith family has a marginal propensity to consume of

Correct AnswerverifiedShow Answer

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional

Correct AnswerverifiedShow Answer

The marginal propensity to consume is the change in consumption divided by the change in

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

All of the following would be included in planned aggregate expenditure EXCEPT

Correct AnswerverifiedShow Answer

If the marginal propensity to import (m) is greater than zero,the income-expenditure multiplier is smaller than when m is equal to zero because

Correct AnswerverifiedShow Answer

Automatic stabilizers are provisions in the law that imply automatic ________ in government spending or _________ in taxes when real output increases.

Correct AnswerverifiedShow Answer

The four components of planned aggregate expenditure are

Correct AnswerverifiedShow Answer

In the basic Keynesian model,to close an expansionary gap of $5 billion,taxes must be

Correct AnswerverifiedShow Answer

In the basic Keynesian model where the marginal propensity to consume is 0.5,transfer payments must be _______,to close a recessionary gap resulting from a $1 billion decrease in autonomous consumption.

Correct AnswerverifiedShow Answer

The expenditure line in the Keynesian cross diagram represents the

Correct AnswerverifiedShow Answer

If planned aggregate expenditure (PAE) in an economy equals 4,000 + 0.6Y and potential output (Y*) equals 9,800,taxes must be increased by ________ (rounded to the nearest whole number) to eliminate any output gap.

Correct AnswerverifiedShow Answer

The key assumption of the basic Keynesian model is that firms meet the demand for their products at preset prices.This means that once a firm has set the price of its product,it

Correct AnswerverifiedShow Answer

The basic Keynesian model assumes that,in the _______,producers sell whatever is demanded at _______ prices.

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is equal to 0.75,then a $100 increase in disposable income leads to a _________ increase in consumption.

Correct AnswerverifiedShow Answer

If planned aggregate expenditure (PAE) in an economy equals 4,000 + 0.6Y and potential output (Y*) equals 9,800,transfer payments must be decreased by ________ (rounded to the nearest whole number) to eliminate any output gap.

Correct AnswerverifiedShow Answer

In the short run,when output is less than planned aggregate expenditure,firms will

Correct AnswerverifiedShow Answer

The shift in the PAE line shown in the Keynesian cross diagram may be caused by which of the following?

Correct AnswerverifiedShow Answer

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Automatic stabilizers are provisions in the law that imply automatic in government spending or _ in taxes when real output increases.

Correct Answer
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Correct Answer
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The basic Keynesian model assumes that,in the _,producers sell whatever is demanded at _ prices.

Correct Answer
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