1. The French economist Jean-Baptiste Say (Say’s Law) transformed the equality of total output and total spending into a law that can be expressed as follows:
  2. Unemployment is not possible in the short run.
  3. Demand and supply are never equal.
  4. Supply creates its own demand.
  5. Demand creates its own supply.
  6. Keynesian economics:
  7. affirms the classical economists’ basic premise concerning competitive markets.
  8. believes that monopolies and unions tend to be permanent fixtures in our economy and
    the prices they create tend to be flexible, at least downwardly.
  9. emphasizes the possibility that an economy can never be in equilibrium at less than
    full employment.
  10. prefers to emphasize aggregate supply over aggregate demand.
  11. believes that unemployment results when aggregate demand is insufficient to reach a full-employment level of real GDP.
  12. The consumption function expresses the:
  13. relation between consumption and dissaving.
  14. relation between consumption and disposable personal income.
  15. purposes of consumption.
  16. relation between consumption and dissaving.
  17. Which of the following will shift the consumption function upward?
  18. An increase in consumer wealth.
  19. An increase in the interest rate.
  20. An increase in personal income taxes.
  21. A decrease in the MPC.
  22. An increase in disposable income.
  23. The consumption function will shift upward if real asset and money holdings:
  24. increase, if people expect prices to increase, if interest rates decrease, and if taxes decrease.
  25. increase, if people expect prices to increase, if interest rates increase, and if taxes increase.
  26. increase, if people expect prices to increase, if interest rates increase, and if taxes decrease.
  27. decrease, if people expect prices to decrease, if interest rates decrease, and if taxes decrease.
  28. decrease, if people expect prices to increase, if interest rates increase, and if taxes decrease.
  29. Consumption spending that is independent of the level of disposable income is known as:
  30. marginal consumption.
  31. transitory consumption.
  32. permanent consumption.
  33. relative consumption.
  34. autonomous consumption.
  35. If your disposable personal income increases from $33,000 to $41,000 and your consumption increases from $8,000 to $12,000, your marginal propensity to consume (MPC) is:
  36. 0.2.
  37. 0.4.
  38. 0.5.
  39. 0.8.
  40. 1.0.
  41. If the marginal propensity to consume = 0.75, then:
  42. the marginal propensity to save = 0.75.
  43. the marginal propensity to save = 1.33.
  44. the marginal propensity to save = 0.20.
  45. the marginal propensity to save = 0.25.
  46. since the marginal propensity to save and the marginal propensity to consume are unrelated, we cannot determine the marginal propensity to save from the informationgiven.

Exhibit 2 Consumption function

  1. As shown in Exhibit 2 autonomous consumption is:
  2. 0.
  3. $2 trillion.
  4. $4 trillion.
  5. $6 trillion.
  6. $8 trillion.
  7. As shown in Exhibit 2, saving occurs:
  8. at 0 disposable income.
  9. between $0 and $4 trillion disposable income.
  10. at $4 trillion disposable income.
  11. at a disposable income greater than $4 trillion.
  12. As shown in Exhibit 2, the marginal propensity to consume (MPC) is:
  13. 0.25.
  14. 0.50.
  15. 0.75.
  16. 0.90.
  17. If the marginal propensity to consume (MPC) is 0.75, a $50 decrease in government spending, other things being equal, would cause equilibrium real GDP to:
  18. increase by $50.
  19. decrease by $50.
  20. increase by $200.
  21. decrease by $200.
  22. Suppose equilibrium real GDP is currently at $800 billion and investment is $100 billion. If an increase in the interest rate reduces investment from $100 billion to $75 billion, and the MPC is 0.8, the new level of equilibrium real GDP will be:
  23. $500 billion.
  24. $600 billion.
  25. $675 billion.
  26. $775 billion.
  27. $800 billion.
  28. Given full-employment output = $2,800, equilibrium output = $2,500, and MPS = 0.25, which of the following changes would most likely bring the economy to a full-employment level of national output?
  29. $300 decrease in taxes.
  30. $75 increase in government spending.
  31. $75 decrease in taxes.
  32. $300 increase in government spending.
  33. $75 decrease in government spending.
  1. The sum of consumption (C), investment (I), government spending, (G), and net exports (X-M) is called:
  2. autonomous spending.
  3. aggregate expenditures.
  4. Keynesian income
  5. wealth.
  6. In the aggregate expenditures-output model, if aggregate expenditures (AE) are greater than GDP, then:
  1. inventory is accumulated.
  2. inventory is unchanged.
  3. employment decreases.
  4. employment increases.
  1. In the aggregate expenditures-output model, if aggregate expenditures (AE) are less than GDP, then:
  1. inventory is depleted.
  2. inventory is unchanged.
  3. employment decreases.
  4. employment increases.
  1. In the aggregate expenditures-output model, if an economy operates below equilibrium GDP, there will be:
  1. unplanned inventory depletion.
  2. unplanned inventory accumulated.
  3. a decrease in GDP.
  4. a decrease in employment.
  1. In the aggregate expenditures-output model, if an economy operates above equilibrium GDP, there will be:
  1. unplanned inventory accumulation.
  2. unplanned inventory depletion.
  3. an increase in GDP.
  4. an increase in employment.
  1. In the aggregate expenditures-output model, if aggregate expenditures (AE) equal $6 trillion and GDP equals $7 trillion, then:
  1. inventory depletion equals -$1 trillion.
  2. inventory accumulation equals $1 trillion.
  3. investment equals $1 trillion.
  4. investment equals -$1 trillion.
  1. If the economy spends 80 percent of any increase in real GDP, then an increase in investment of $1 billion would result ultimately in an increase in real GDP of:
  1. $0.
  2. $0.8 billion.
  3. $1.0 billion.
  4. $5.0 billion.
  1. Assume the marginal propensity to save is 0.10. Firms become optimistic and increase investment spending by $10 billion. Other things being equal, real GDP will:
  1. increase by $1 billion.
  2. not change.
  3. increase by $10 billion.
  4. increase by $100 billion.
  1. The equilibrium level of real GDP is $1,000, the target level of real GDP is $1,250, and the marginal propensity to consume (MPC) is 0.60. The target can be reached if government spending is:
  1. increased by $60 billion.
  2. increased by $100 billion.
  3. increased by $250 billion.
  4. held constant.