Question 1

In an economy described by the assumptions of the simple Keynesian Model,the impact of fluctuations in autonomous investment on consumption spending could be

Accepted Answer

A)  caused by government tax and spending policies.
B)  explained by changes in output,Y.
C)  endogenous.
D)  offset by government tax and spending policies.E) B) and D)
F) A) and B)

Question 2

In the four-part diagram used to construct the IS curve,a decrease in the interest rate causes

Accepted Answer

A)  an increase in Ap and induced saving but does not shift the IS curve.
B)  an increase in Ap and induced saving and shifts the IS curve to the right.
C)  a decrease in Ap,an increase in induced saving,and shifts the IS curve to the right.
D)  a decrease in Ap and a decrease in induced saving,but does not shift the IS curve.E) B) and C)
F) None of the above

Question 3

Figure 3-3
 
-In Figure 3-3 above,equilibrium income is

Accepted Answer

A)  400.
B)  640.
C)  666.67.
D)  1,000.
E)  2,400.F) A) and D)
G) B) and D) D

Question 4

Figure 3-4
 
-In Figure 3-4 above,the multiplier is

Accepted Answer

A)  2.5.
B)  0.6.
C)  0.4.
D)  1.67.
E)  1.5.F) A) and B)
G) A) and C) A

Question 5

Figure 3-7
 
-In Figure 3-7 above,if natural real GDP = $2500,AP = $250,and the change in "a" = change in I = change in NX = 0,the tax cut required to achieve then natural real GDP is

Accepted Answer

A)  $312.50.
B)  $250.00.
C)  $500.00.
D)  none of the above.E) A) and B)
F) A) and C)

Question 6

The portion of net exports determined by income in foreign countries is

Accepted Answer

A)  induced net exports.
B)  autonomous net exports.
C)  total net exports.
D)  always equal to zero.E) B) and D)
F) All of the above

Question 7

If planned autonomous investment is 500,autonomous consumption 300,induced consumption 2500,savings 500,and government spending and taxes zero,then

Accepted Answer

A)  Ep is 3300 and the economy is in equilibrium.
B)  Ep is 3300 and the economy is out of equilibrium.
C)  Ep is 3500 and the economy is in equilibrium.
D)  Ep is 3500 and the economy is out of equilibrium.E) A) and B)
F) A) and D)

Question 8

If Ep is 3500 and Y is 3000,then companies will

Accepted Answer

A)  reduce orders and production by 500.
B)  increase orders and production by 500.
C)  wait for final sales to increase but continue to produce at existing level in the future.
D)  wait for final sales to decrease but reduce the level of production in the future.E) C) and D)
F) All of the above

Question 9

Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to a ________ amount of unplanned inventory investment,and thus ________ pressure on output.

Accepted Answer

A)  positive,upward
B)  positive,downward
C)  negative,upward
D)  negative,downwardE) C) and D)
F) A) and B)

Question 10

Assuming a simple Keynesian multiplier,and given an increase in planned investment of $100 billion,the effect on total output will be greater than $100 billion only if the

Accepted Answer

A)  MPS is greater than zero.
B)  MPC is zero.
C)  MPS is less than zero.
D)  MPC is greater than one.E) A) and B)
F) A) and C)

Question 11

During the 20th century,the highest savings rates in the U.S.were observed during

Accepted Answer

A)  the Great Depression.
B)  World War II.
C)  the late 1980s and 1990s.
D)  none of the above.E) A) and B)
F) A) and C)

Question 12

A falling interest rate ________ the number of investment projects having a positive profit rate,and thus ________ the amount of output that firms demand for themselves.

Accepted Answer

A)  increases,raises
B)  increases,lowers
C)  decreases,raises
D)  decreases,lowerE) C) and D)
F) A) and B)

Question 13

Where the planned expenditure and the 45-degree lines intersect,the economy is ________ equilibrium,with unplanned inventory investment equal to ________.

Accepted Answer

A)  in,zero
B)  out of,zero
C)  in,planned inventory investment
D)  in,autonomous planned expenditure
E)  out of,autonomous planned expenditureF) A) and E)
G) D) and E)

Question 14

If Y = income,G = government spending,T = autonomous taxes,and t = income tax rate,then the government budget deficit can be expressed as

Accepted Answer

A)  G - T/Y(t) .
B)  G - T.
C)  Y + G - T - ty.
D)  G - T - ty.E) C) and D)
F) A) and B)

Question 15

During a recession,automatic stabilization causes the government budget deficit to

Accepted Answer

A)  fall.
B)  increase.
C)  remain stable.
D)  move in the same direction as Y.E) A) and B)
F) C) and D)

Question 16

Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to ________-than-equal planned expenditures,and so we must be ________ the equilibrium level of income.

Accepted Answer

A)  less,below
B)  less,above
C)  greater,below
D)  greater,aboveE) C) and D)
F) None of the above

Question 17

During recent Global Economic Crises,U.S.household liabilities have

Accepted Answer

A)  increased
B)  decreased
C)  remained the same
D)  quadrupledE) A) and B)
F) A) and C)

Question 18

Total income is always equal to ________ expenditures;but only in equilibrium is it equal to ________ expenditures,producing in equilibrium ________ on income to change.

Accepted Answer

A)  actual,planned,pressure
B)  actual,planned,no pressure
C)  planned,actual,pressure
D)  planned,actual,no pressureE) A) and D)
F) All of the above

Question 19

Since business firms will undertake a project whose rate of return exceeds the present level of interest rates,when interest rates

Accepted Answer

A)  rise planned investment rises,ceteris paribus.
B)  fall planned investment falls,ceteris paribus.
C)  rise planned investment does not change.
D)  rise planned investment falls,ceteris paribus.E) A) and C)
F) A) and B)

Question 20

If planned investment changes as interest rates change,then

Accepted Answer

A)  autonomous consumption changes.
B)  autonomous investment changes.
C)  total expenditures and output changes.
D)  the marginal leakage rate changes.E) B) and D)
F) A) and D) C

Exam 3: Income and Interest Rates: the Keynesian Cross Model and the Is Curve

In an economy described by the assumptions of the simple Keynesian Model,the impact of fluctuations in autonomous investment on consumption spending could be

Correct AnswerverifiedShow Answer

In the four-part diagram used to construct the IS curve,a decrease in the interest rate causes

Correct AnswerverifiedShow Answer

Figure 3-3 -In Figure 3-3 above,equilibrium income is

Correct AnswerverifiedD

Figure 3-4 -In Figure 3-4 above,the multiplier is

Correct AnswerverifiedA

Figure 3-7 -In Figure 3-7 above,if natural real GDP = $2500,AP = $250,and the change in "a" = change in I = change in NX = 0,the tax cut required to achieve then natural real GDP is

Correct AnswerverifiedShow Answer

The portion of net exports determined by income in foreign countries is

Correct AnswerverifiedShow Answer

If planned autonomous investment is 500,autonomous consumption 300,induced consumption 2500,savings 500,and government spending and taxes zero,then

Correct AnswerverifiedShow Answer

If Ep is 3500 and Y is 3000,then companies will

Correct AnswerverifiedShow Answer

Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to a ________ amount of unplanned inventory investment,and thus ________ pressure on output.

Correct AnswerverifiedShow Answer

Assuming a simple Keynesian multiplier,and given an increase in planned investment of $100 billion,the effect on total output will be greater than $100 billion only if the

Correct AnswerverifiedShow Answer

During the 20th century,the highest savings rates in the U.S.were observed during

Correct AnswerverifiedShow Answer

A falling interest rate ________ the number of investment projects having a positive profit rate,and thus ________ the amount of output that firms demand for themselves.

Correct AnswerverifiedShow Answer

Where the planned expenditure and the 45-degree lines intersect,the economy is ________ equilibrium,with unplanned inventory investment equal to ________.

Correct AnswerverifiedShow Answer

If Y = income,G = government spending,T = autonomous taxes,and t = income tax rate,then the government budget deficit can be expressed as

Correct AnswerverifiedShow Answer

During a recession,automatic stabilization causes the government budget deficit to

Correct AnswerverifiedShow Answer

Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to ________-than-equal planned expenditures,and so we must be ________ the equilibrium level of income.

Correct AnswerverifiedShow Answer

During recent Global Economic Crises,U.S.household liabilities have

Correct AnswerverifiedShow Answer

Total income is always equal to ________ expenditures;but only in equilibrium is it equal to ________ expenditures,producing in equilibrium ________ on income to change.

Correct AnswerverifiedShow Answer

Since business firms will undertake a project whose rate of return exceeds the present level of interest rates,when interest rates

Correct AnswerverifiedShow Answer

If planned investment changes as interest rates change,then

Correct AnswerverifiedC

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D

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A

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Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to a amount of unplanned inventory investment,and thus pressure on output.

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A falling interest rate the number of investment projects having a positive profit rate,and thus the amount of output that firms demand for themselves.

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Where the planned expenditure and the 45-degree lines intersect,the economy is equilibrium,with unplanned inventory investment equal to .

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Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to -than-equal planned expenditures,and so we must be the equilibrium level of income.

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Total income is always equal to expenditures;but only in equilibrium is it equal to expenditures,producing in equilibrium on income to change.

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C