Economics homework

August 14th, 2017

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1-If consumption is $1,230 when disposable income is $1,420, and consumption is $1,400 when disposable income is $1,620, then the marginal propensity to consume (MPC) is

a.15.

6.67.
1.15.
0.85.

2-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.

flexible; downward; AD; right
flexible; upward; SRAS; right
inflexible; downward; SRAS; right
inflexible; upward; SRAS; left
inflexible; downward; AD; right

3-When there is economy-wide equilibrium, there is a tendency for

prices to fall.
prices to rise.
total output to rise.
total output to fall.
total output to remain unchanged.

4-Ex

Disposable Income Y_d	Consumption C
$2,000	$2,040
2,100	2,120
2,200	2,200
2,300	2,280
2,400	2,360

Refer to Exhibit 10-3. When disposable income equals $2,000, saving equals

-$20.
-$40.
$20.
0.
$40.

5-Here is a consumption function: C = C₀ + MPC(Y_d). The C₀ term is usually defined as

autonomous consumption.
point-zero consumption.
propensitory consumption.
mandatory consumption.
none of the above

6-Which of the following is not an aspect of Keynesian economics?

The interest rate is important in determining the level of investment, but not as important as other variables.
Unemployment above natural unemployment is always a temporary phenomenon.
Supply does not necessarily generate its own demand.
Wages and prices tend to be inflexible downward.

7-Here is a consumption function: C = C₀ + MPC(Y_d). If MPC is 0.95, then we know that

asY_drises by $1, C rises by $0.95.
Y_drises by $0.95.
asY_drises by $1, Co rises by $0.95.
as C₀rises by $0.05, Y_d rises by $1.

8-If households purchase $60,000 worth of consumer goods and firms produce $50,000 worth of consumer goods, then

inventory changes are +$10,000.
new capital goods expenditures (by firms) are $10,000.
inventory changes are -$10,000.
consumer goods expenditures are $10,000.

9-One similarity between the beliefs of the classical economists and Keynes is that increased saving would necessarily stimulate an equal amount of increased investment spending.

true false

10-Which of the following statements is false?

Keynes did not believe in Say’s law.
Keynes believed that interest rate flexibility will ensure that saving is equal to investment.
Keynes believed that monopolistic elements in the economy will prevent immediate price declines.
Keynes believed that during periods of high unemployment, labor unions will prevent wages from falling fast enough to restore full employment.

11-If people buy more than has been produced,

there will be a decrease in total output.
the economy is in equilibrium.
there will be an increase in inventory.
total expenditures are greater than total production.

12-The marginal propensity to consume (MPC) refers to the proportion of disposable income that is spent on consumption.

true false

13-The Keynesian aggregate supply curve is

downward sloping.
upward sloping.
horizontal until Natural Real GDP (Q_N) and vertical at Q_N.
vertical.
sometimes upward sloping and sometimes horizontal.

14-Which of the following statements would Keynes be most likely to agree with?

Investment is exclusively dependent upon the interest rate.
The internal structure of the economy is not always competitive enough to allow prices to fall.
Say’s law holds in both a barter and money economy.
Saving is more responsive to changes in interest rates than to changes in income.
none of the above

15- Government purchases rise by $100 billion and the MPC is equal 0.75. Assuming that idle resources exist at each expenditure round, and the multiplier is operative, the change in Real GDP equals

$400 billion.
$750 billion.
$75 billion.
$40 billion.
$250 billion.

16- How does the classical position on saving differ from Keynes’s position?

Classical position: people save more at lower interest rates. Keynes’s position: people save less at lower interest rates.
Classical position: changes in the interest rate are irrelevant to saving decisions. Keynes’s position: saving is directly related to the interest rate.
Classical position: saving can be inversely related to the interest rate. Keynes’s position: consumption rises as saving rises.
Classical position: saving is directly related to the interest rate. Keynes’s position: at times, saving may be inversely related to the interest rate.
none of the above

17- Which of the following statements is true?

Keynes believed wages are inflexible downward but prices (of goods and services) are flexible.
Keynes believed an economy could get stuck in a recessionary gap.
Keynes originated the idea of efficiency wages.
Keynes believed the economy is self-regulating.
b and c

18- For Say’s law to hold in a money economy,

funds invested must give rise to an equal amount of funds spent.
funds saved must give rise to an equal amount of funds invested.
funds spent must give rise to an equal amount of output produced.
interest rates must fall when saving decreases.
b and c

19-If the multiplier is 5, then the MPC must be

2/3.
3/4.
1/6.
1/5.
4/5.

20-Which of the following is not an aspect of Keynesian economics?

The interest rate is important in determining the level of investment, but not as important as other variables.
Unemployment above natural unemployment is always a temporary phenomenon.
Wages and prices tend to be inflexible downward.
Supply does not necessarily generate its own demand.

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