Exam 2

If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent?

$1,000

If disposable income is $3,000 and saving is $1,200, how much is consumption

$1,800

In an economy with three sectors (household, business, and government - i.e. no foreign sector), government spending is $5 billion, taxes are $4 billion, and investment is $4 billion. If the economy is in equilibrium, then saving is

$5 Billion

If income rises from $10,000 to $20,000 and consumption increases from $9,000 to $16,000, then the marginal propensity to consume is:

0.70

If the marginal propensity to save is 0.25, the multiplier is:

4.

Approximately what share of U.S. GDP is consumption?

70%

short-run macroeconomic equilibrium occurs at the intersection of

Aggregate demand and short run aggregate supply

Which of the following would cause a rightward shift of the aggregate demand (AD) curve?

An increase in planned investment

Which is the following is specifically designed to increase the long- run aggregate supply curve?

Developing new technologies

Because the private and foreign sectors of the economy were in a deep slump during the Great Depression of the 1930s, Keynes suggested an increase in

Government spending

Aggregate supply shift to the left when

Input prices rise

The proportion of additional income that consumers spend is known as the

Marginal propensity to consume

If a household's income falls from $26,000 to $24,000 and it's consumption spending falls from $25,000 to $23,500, then it's

Marginal propensity to save is 0.25

Which of the following will cause the aggregate demand curve to shift to the right?

Reduction in personal income taxes

Attempting to balance the governments budget during a severe recession will:

Tend to make the recession worse

Which of the following is assumed constant in the Keynesian model?

The price level

John Maybard Keynes analysis was based on an economy whose resource were underutilized

True

In the simple Keynesian model with no government and no foreign sector the economy is in equilibrium when

Y= C + I and S= I

Without government or a foreign sector, which of the following equations is TRUE?

Y= C + S

Which of the following is NOT an explicit short-run goals of discretionary fiscal policy

Zero unemployment

Which of the following events will shift the aggregate demand curve to the right?

a new government program to eliminate poverty

John Maynard Keynes focused on _____ to explain how the economy reaches short-term equilibrium employment, output, and income.

aggregate spending

The distinction between discretionary fiscal policy and the use of automatic stabilizers is that

automatic stabilizers, once adopted, are built into the structure of the economy

Which group of economists believed that economic downturns were self-correcting, that is the forces of supply and demand would naturally bring the economy back to equilibrium?

classical economists

The more time a free market economy has to adjust to price changes, the:

closer GDP gets to the natural rate of output

In the Keynesian framework, the way to fight a recession is to

cut taxes and/or increase government spending

The Great Depression was primarily the result of

decrease aggregate demand

A shift of the aggregate ______ curve to the ______ would cause inflation to rise and employment to increase

demand; right

Assume that the multiplier is 10. Full employment is considered to be at a GDP level of $500 billion. The current GDP is $400 billion. According to Keynesian macroeconomics, what should the government do to achieve full employment

increase spending by $10 billion

Less of society's resources will be channeled into capital when

interest rates are high

Federal spending that is authorized by permanent laws and does not go through the annual appropriation process is called ______ spending

mandatory

In the Keynesian aggregate expenditure model, which variable is assumed to be fixed?

price level

Economic growth is shown as a

shift to the right of the long-run aggregate supply curve

When the economy is below full employment, expansionary fiscal policy?

shifts the aggregate demand curve to the right

Keynes's insight during the Great Depression was that:

the economy can be in both equilibrium and high unemployment.

Mandatory spending comprises nearly ______ of the federal budget

two-thirds