MCQ 65 Part 1

1.If the consumption function is C = 20 + 0.5y then an increase in disposable income by 100 will result in an increase in consumer expenditure by

A) 50

B) 70.

C) 50.✔

D) 100.

2.If the consumption function is C = 20 + 0.8y then an increase in disposable income by 100 will result in an increase in consumer expenditure by

A) 58.

B) 64.

C) 80.✔

D) 100.

3.Keynes was especially interested in explaining movements of ________ because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase ________ in a similar economic situation.

A) aggregate output; wages

B) aggregate output; employment✔

C) wage rates; wages

D) wage rates; employment

4.Keynes was especially concerned with explaining the

A) recession of 1920-21.

B) low levels of output and employment during the Great Depression✔.

C) strong economic growth of the 1920s.

D) high unemployment in Great Britain during the 1920s.

5.Keynes was especially concerned with explaining the ________ level of output and employment during the ________.

A) low; 1920

B) low; 1930✔

C) high; 1920

D) high; 1930

6.In the simple Keynesian model, equilibrium aggregate output is determined by

A) aggregate demand.✔

B) aggregate supply.

C) the national demand for labor.

D) the price level.

7.Under Keynesian analysis, aggregate demand can be written as

A) Y= C + I + G + NX.✔

B) Y= C + I + G - NX.

C) Y= C - I - G - NX.

D) Y= C + I - G - NX.

8.Keynes reasoned that consumer expenditure is most closely related to

A) the level of interest rates.

B) the price level.

C) disposable income.✔

D) the marginal tax rate.

9.In the Keynesian model of income determination, consumer expenditure includes spending by

A) consumers on personal computers.✔

B) businesses on personal computers.

C) governments on personal computers.

D) foreigners on domestic personal computers.

10.The marginal propensity to consume (mpc) can be defined as the fraction of

A) a change in income that is spent.✔

B) a change in income that is saved.

C) income that is spent.

D) income that is saved.

11.If the consumption function is expressed as C = a + mpc × YD, then "mpc" represents

A) autonomous consumer expenditure.

B) the marginal propensity to consume.✔

C) the expenditure multiplier.

D) disposable income.

12.If the consumption function is expressed as C = a + mpc × YD, then "a" represents

A) autonomous consumer expenditure.

B) the marginal propensity to consume.

C) the expenditure multiplier.

D) disposable income.

13.His analysis started with the recognition that the total quantity demanded of an economy's output was the sum of four types of spending: consumer expenditure, planned investment spending, government spending, and net exports.

A) John Maynard Keynes✔

B) Sir John Hicks

C) Milton Friedman

D) Paul A. Samuelson

14.Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining

A) the hyperinflations of the 1920s.

B) why the Great Depression occurred.✔

C) the high unemployment in Great Britain before World War I.

D) the high unemployment in Great Britain after World War I1

15.Assume that autonomous consumption equals 200 and that the mpc equals 0.8. If disposable income equals 1000, then total consumption equals

A) 80.

B) 200.

C) 800.

D) 1000.✔

16.Assume that autonomous consumption equals 200 and disposable income equals 1000. If total consumption equal $800, then the mpc equals

A) 0.2.

B) 0.6.✔

C) 0.8.

D) 1.0.

17.Assume that disposable income equals 1000 and the mpc equals 0.6. If total consumption equal 800, then autonomous consumption is equal to

A) 5000.

B) 200.

C) 800.

D) 1000.

18.Everything else held constant, if total consumption increases from 600 to 800 because of an increase of disposable income of 400, then the mpc is equal to

A) 0.2.

B) 0.4.

C) 0.5.✔

D) 0.6.

19.Everything else held constant, if consumption expenditure increases by 65 for a 100 increase in disposable income, the mpc is

A) 0.2

B) 0.5.

C) 0.65.✔

D) 1.

20.Everything else held constant, if disposable income increases by 200 and consumption expenditure increases by 150, the mpc is

A) 0.60

B) 0.15.

C) 0.5.

D) 0.75.✔

21.Everything else held constant, if consumption expenditure falls by 160 when disposable income falls by 200, the mpc is

A) 0.1

B) 0.2.

C) 0.4.

D) 0.8.✔

22.Economists define investment as the purchase of

A) a new physical asset such as a new machine or a new house.✔

B) any physical asset, whether new or not, used by business to increase production.

C) any physical asset used by business to increase production and the repurchase of common stock.

D) business spending on capital and household spending on durable goods.

23.Planned investment spending, a component of aggregate demand, is equal to

A) fixed investment plus actual inventory investment.

B) fixed investment plus unplanned inventory investment.

C) fixed investment.

D) fixed investment plus planned inventory investment.✔

24.There are two types of investment: ________ investment—the spending by business firms on equipment and structures, and planned spending on residential houses—and ________ investment—spending by business firms on additional holdings of raw materials, parts, and finished goods.

A) planned; gross

B) planned; inventory

C) fixed; gross

D) fixed; inventory✔

25.A fall in inventories is synonymous with ________ investment.

A) negative fixed

B) positive fixed

C) positive inventory

D) negative inventory✔

26.A difference between inventory investment and fixed investment is that

A) fixed investment is never unplanned.✔

B) fixed investment is never planned.

C) inventory investment is never unplanned.

D) unplanned inventory investment is always zero.

27.Keynes mentioned two factors that influenced planned investment spending

A) interest rates and disposable income.

B) interest rates and business expectations about the future.✔

C) disposable income and business expectations about the future.

D) interest rates and business expectations about inflation.

28.Factors that influenced planned investment spending include

A) real interest rates.

B) financial frictions.

C) emotional waves of optimism and pessimism.

D) all of the above.✔

29.Planned investment spending is higher

A) when real interest rate is higher.

B) during financial frictions.

C) when businesses are optimistic.✔

D) all of the above.

30.Aggregate demand in an economy with no government or foreign trade is

A) consumer expenditure plus actual investment.

B) consumer expenditure plus planned investment.✔

C) consumer expenditure plus inventory investment.

D) consumer expenditure plus fixed investment.

31.If unplanned investment is positive, firms will ________ production and output will ________.

A) cut; rise

B) cut; fall✔

C) increase; rise

D) increase; fall

32.If unplanned investment is negative, firms will ________ production and output will ________.

A) cut; rise

B) cut; fall

C) increase; rise✔

D) increase; fall

33.In the Keynesian framework, as long as output is below the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to ________ production.

A) negative; lower

B) negative; raise✔

C) positive; lower

D) positive; raise

34.In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to raise production.

A) below; negative✔

B) above; negative

C) below; positive

D) above; positive

35.In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to lower production.

A) below; negative

B) above; negative

C) below; positive

D) above; positive✔

36.In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain positive and firms will continue to ________ production.

A) below; lower

B) above; lower✔

C) below; raise

D) above; raise

37.In the Keynesian framework, as long as output is above the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to ________ production.

A) negative; lower

B) negative; raise

C) positive; lower✔

D) positive; raise

38.In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain negative and firms will continue to ________ production.

A) below; lower

B) above; lower

C) below; raise✔

D) above; raise

39.In the Keynesian framework, as long as output is below the equilibrium level, unplanned inventory investment will remain negative, firms will continue to ________ production, and output will continue to ________.

A) lower; fall

D) raise; rise✔

40.In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________, firms will continue to raise production, and output will continue to rise.

A) below; negative✔

B) above; negative

C) below; positive

D) above; positive

41.In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________, firms will continue to lower production, and output will continue to fall.

A) below; negative

B) above; negative

C) below; positive

D) above; positive✔

42.An increase in unplanned inventory investment for the entire economy equals the excess of

A) output over aggregate supply.

B) output over aggregate demand.✔

43.A decrease in unplanned inventory investment for the entire economy equals the excess of

A) output over aggregate supply.

B) output over aggregate demand.

C) aggregate supply over output.

D) aggregate demand over output.✔

44.If aggregate demand is less than the level of aggregate output, then ________ inventory investment will be ________.

A) planned; positive

B) actual; positive✔

C) actual; negative

D) planned; negative

45.If aggregate demand falls short of current output, business firms will ________ production to ________ inventories.

A) cut; keep from accumulating✔

B) expand; keep from accumulating

C) cut; build up

D) expand; build up

46.If aggregated demand is less than actual output, unplanned inventory ________ will cause output to ________.

A) accumulation; rise

B) depletion; fall

C) depletion; rise

D) accumulation; fall✔

47.If actual output is less than equilibrium output, firms will ________ output to keep from ________ inventories.

A) increase; accumulating

B) increase; depleting✔

C) decrease; depleting

D) decrease; accumulating

48.If actual output is greater than equilibrium output, firms will ________ output to keep from ________ inventories.

A) increase; accumulating

B) increase; depleting

C) decrease; depleting

D) decrease; accumulating✔

49.When the level of unplanned inventory investment is equal to zero, the economy is

A) in disequilibrium.

B) in a recession.

C) in equilibrium.✔

D) overheating

50.If aggregate demand equals output,

A) the economy is in a recession.

B) output will increase.

C) output will fall.

D) the economy is at its equilibrium level.✔

51.Situation 20-1 Assume a closed economy with no government. Suppose that autonomous consumption equals 400, planned investment equals 500, and the mpc equals 0.9.Using the information in Situation 20-1, if aggregate output is equal to 10,000, then unplanned inventory investment equals

A) -1000

B) -100

C) 1000

D) 100✔

52.Situation 20-1Assume a closed economy with no government. Suppose that autonomous consumption equals 400, planned investment equals 500, and the mpc equals 0.9.Using the information in Situation 20-1, if aggregate output equals 8,000, the unplanned inventory investment equals

A) -100✔

B) -500

C) 100

D) 500

53.Situation 20-1Assume a closed economy with no government. Suppose that autonomous consumption equals 400, planned investment equals 500, and the mpc equals 0.9.Using the information in Situation 20-1, the equilibrium level of aggregate output is

A) 900

B) 8,000

C) 9,000✔

D) 10,000

54.Situation 20-1Assume a closed economy with no government. Suppose that autonomous consumption equals 400, planned investment equals 500, and the mpc equals 0.9.Using the information contained in Situation 20-1, if autonomous consumption increases by 100, then equilibrium aggregate output will change by

A) -1,000.

B) -100.

C) 100.

D) 1,000.✔

55.Situation 20-1Assume a closed economy with no government. Suppose that autonomous consumption equals 400, planned investment equals 500, and the mpc equals 0.9.Using the information contained in Situation 20-1, if planned investment decreases by 100, the equilibrium aggregate output will change by

A) -1,000.✔

B) -100.

C) 100.

D) 1,000.

56.Keynes believed that changes in autonomous spending were dominated by changes in

A) consumer expenditure.

B) autonomous consumer expenditure.

C) investment spending.✔

D) taxes.

57.Keynes believed that changes in autonomous spending were dominated by unstable fluctuations in ________, which are influenced by emotional waves of optimism and pessimism—factors he referred to as "animal spirits."

A) unplanned investment spending

B) actual investment spending

C) planned investment spending✔

D) autonomous consumer expenditures

58.In the simple Keynesian framework, declines in planned investment spending that produce high unemployment can be offset by raising

A) taxes.

B) government spending.✔

C) consumer confidence.

D) business confidence.

59.The Keynesian framework indicates that government can play an important role in determining aggregate output by

A) changing the level of government spending or taxes.✔

B) raising consumer confidence.

C) raising investor confidence.

D) changing the money supply and interest rates.

60.A tax cut initially

A) increases consumption expenditure by an amount greater than the tax cut.

B) increases consumption expenditure by an amount equal to the tax cut.

C) increases consumption expenditure by an amount that is less than the value of the tax cut.✔

D) has no effect on consumption expenditure.

61.Assume equilibrium at full employment for an economy characterized by the simple Keynesian model. If the government raises taxes to eliminate a budget deficit, then

A) the rate of unemployment will increase.✔

B) the level of aggregate output will increase.

C) the price level will increase.

D) the rate of interest will fall.

62.Situation 20-2Assume a closed economy. Suppose that autonomous consumption equals 400, planned investment equals 500, government expenditure equals 200, net taxes equals 50, and the mpc equals 0.9.

Using the information in situation 20-2, if government spending increases by 100, then the equilibrium aggregate output will change by

A) -1,000.

B) -100.

C) 100.

D) 1,000.✔

63.Situation 20-2Assume a closed economy. Suppose that autonomous consumption equals 400, planned investment equals 500, government expenditure equals 200, net taxes equals 50, and the mpc equals 0.9.

Using the information in Situation 20-2, if taxes increase by 10, then the equilibrium aggregate output will change by

A) -90.✔

B) -10.

C) 10.

D) 90.

64.Situation 20-2Assume a closed economy. Suppose that autonomous consumption equals 400, planned investment equals 500, government expenditure equals 200, net taxes equals 50, and the mpc equals 0.9.

Using the information in situation 20-2, if government increases their spending by 50 and increases net taxes by 50, then equilibrium aggregate output will change by

A) -100.

B) -50.

C) 50.✔

D) 100.

65.In a closed economy, aggregate demand is the sum of

A) consumer expenditure, actual investment spending, and government spending.

B) consumer expenditure, planned investment spending, and government spending.✔

C) consumer expenditure, actual investment spending, government spending, and net exports.

D) consumer expenditure, planned investment spending, government spending, and net exports.