Question 1

According to Keynes,real saving and real consumption spending are functions of

Accepted Answer

A)  economic expectations.
B)  an individual's future earning potential.
C)  current educational attainment.
D)  current real disposable income.E) None of the above
F) A) and D)

Question 2

Assuming that  = $20,000 and C = $22,000,we would find that the average propensity to consume would be equal to

Accepted Answer

A)  0.9.
B)  1.1.
C)  1.8.
D)  0.8.E) B) and C)
F) None of the above

Question 3

In a closed economy,equilibrium real Gross Domestic Product (GDP) occurs where

Accepted Answer

A)  the C + I + G line crosses the 45-degree line.
B)  planned expenditures exceed national income.
C)  saving exceeds planned investment.
D)  all of these.E) B) and C)
F) A) and B)

Question 4

With reference to the consumption function,the 45-degree line represents

Accepted Answer

A)  the planned savings function.
B)  all points at which planned real saving is equal to real disposable income.
C)  all points at which planned real saving is equal to planned real consumption spending.
D)  all points at which real disposable income is equal to real consumption spending.E) A) and B)
F) A) and C)

Question 5

-In the above figure,the equilibrium level of planned saving plus net taxes is

Accepted Answer

A)  $1.0 trillion.
B)  $2.0 trillion.
C)  $3.0 trillion.
D)  $4.0 trillion.E) B) and D)
F) A) and C)

Question 6

The average price of a share of stock on the New York Stock Exchange falls by 30 percent.Other things being equal,we would expect

Accepted Answer

A)  an increase in the marginal propensity to consume.
B)  a decrease in the marginal propensity to consume.
C)  a shift up of the consumption function.
D)  a shift down of the consumption function.E) All of the above
F) A) and D)

Question 7

In the consumption function model,the 45-degree line represents where

Accepted Answer

A)  the real disposable income is equal to zero.
B)  planned real saving is equal to zero.
C)  planned real consumption spending is equal to zero.
D)  planned real saving is greater than actual real savings.E) B) and D)
F) A) and D)

Question 8

What happens as interest rates fall?

Accepted Answer

A)  The number of profitable investment opportunities declines.
B)  The opportunity cost of using retained earnings to finance investment spending declines.
C)  Planned investment spending also falls.
D)  Planned investment spending remains constant since it depends on profit projections not interest rates.E) All of the above
F) B) and D)

Question 9

An increase in the interest rate will cause

Accepted Answer

A)  planned investment spending to increase.
B)  planned investment spending to decrease.
C)  the investment function to shift out.
D)  the investment function to shift in.E) A) and B)
F) A) and C)

Question 10

The larger the value of the marginal propensity to save (MPS) ,

Accepted Answer

A)  the larger is the value of the multiplier.
B)  the larger is the value of the marginal propensity to consumption (MP
C)  .
C)  the larger is the value of autonomous consumption.
D)  the smaller is the value of the multiplier.E) None of the above
F) C) and D)

Question 11

-In the above figure,at the equilibrium level of real GDP,there is

Accepted Answer

A)  positive saving.
B)  negative saving.
C)  zero saving.
D)  a negative tax rate.E) A) and B)
F) All of the above

Question 12

In equilibrium,real GDP is equal to

Accepted Answer

A)  C + I + G - X.
B)  C + I + X - G.
C)  C + I + G + X.
D)  C + I + G + X + S.E) A) and B)
F) C) and D)

Question 13

In the Keynesian model,government spending is considered

Accepted Answer

A)  a positive function of real GDP.
B)  a negative function of real GDP.
C)  to be a negative function of the real interest rate.
D)  to be autonomous.E) A) and B)
F) C) and D)

Question 14

-According to the above table,the value of MPS is ________.

Accepted Answer

A)  0.9
B)  0.2
C)  0.1
D)  increasing as real disposable income rises.E) A) and B)
F) All of the above

Question 15

-Refer to the above figure.Saving occurs at

Accepted Answer

A)  only at point A.
B)  to the left of point B.
C)  only at point B.
D)  to the right of point B.E) A) and C)
F) A) and B)

Question 16

Ignoring the government and foreign sectors,equilibrium real Gross Domestic Product (GDP) is determined by

Accepted Answer

A)  the intersection of the planned saving and planned investment schedules.
B)  the intersection of the planned saving and planned consumption schedules.
C)  the intersection of the consumption function with the 45-degree line.
D)  finding the real Gross Domestic Product (GDP) for which real savings are zero.E) A) and B)
F) None of the above

Question 17

Consider a closed economy without a government and without international trade.What will be true when this economy is in equilibrium?

Accepted Answer

A)  Total planned real investment spending will exceed total planned real expenditures.
B)  Planned real investment spending will exceed real planned saving.
C)  Planned real consumption spending equals real GDP.
D)  Planned real consumption spending plus planned real investment spending equals real GDP.E) A) and B)
F) B) and C)

Question 18

Suppose the economy is initially at equilibrium,in which total planned real expenditures equals real GDP.Which of the following will occur if there is an increase in autonomous investment?

Accepted Answer

A)  Inventories will increase immediately and production of goods and services will decrease until real GDP catches up with total planned real expenditures.
B)  Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures.
C)  Both inventories and production of goods and services will increase.
D)  Inventories will not change and production of goods and services will not change either.E) All of the above
F) A) and C)

Question 19

According to the permanent income hypothesis,a temporary increase in income that does not affect average lifetime income would

Accepted Answer

A)  cause a large increase in consumption.
B)  cause no change in consumption.
C)  cause an increase in consumption and saving by the same amount.
D)  cause a decrease in consumption and saving by the same amount.E) B) and C)
F) A) and B)

Question 20

In the Keynesian model,whenever planned saving is less than planned investment,

Accepted Answer

A)  there will be unplanned inventory accumulation.
B)  there will be unplanned inventory depletion.
C)  real GDP will not be influenced.
D)  the interest rate will remain unchanged.E) A) and B)
F) A) and C)

Exam 12: Consumption, real GDP, and the Multiplier

According to the permanent income hypothesis,a temporary increase in income that does not affect average lifetime income would

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-Refer to the above figure.Saving occurs at

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With reference to the consumption function,the 45-degree line represents

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Consider a closed economy without a government and without international trade.What will be true when this economy is in equilibrium?

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-According to the above table,the value of MPS is ________.

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According to Keynes,real saving and real consumption spending are functions of

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An increase in the interest rate will cause

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In the Keynesian model,government spending is considered

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Ignoring the government and foreign sectors,equilibrium real Gross Domestic Product (GDP) is determined by

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What happens as interest rates fall?

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The larger the value of the marginal propensity to save (MPS) ,

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-In the above figure,the equilibrium level of planned saving plus net taxes is

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In a closed economy,equilibrium real Gross Domestic Product (GDP) occurs where

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In equilibrium,real GDP is equal to

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In the Keynesian model,whenever planned saving is less than planned investment,

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The average price of a share of stock on the New York Stock Exchange falls by 30 percent.Other things being equal,we would expect

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In the consumption function model,the 45-degree line represents where

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Assuming that = $20,000 and C = $22,000,we would find that the average propensity to consume would be equal to

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-In the above figure,at the equilibrium level of real GDP,there is

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Suppose the economy is initially at equilibrium,in which total planned real expenditures equals real GDP.Which of the following will occur if there is an increase in autonomous investment?

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