Chapter 11 Problem Set

In this graph, if firms are producing at level Y1, then inventories will ______, inducing firms to ______ production. rise; increase fall; increase rise; decrease fall; decrease

fall; increase

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6 and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by: 250. 150. 100. 0.

100

Changes in fiscal policy shift the: LM curve. money supply curve. IS curve. money demand curve.

IS curve.

The simple investment function shows that investment ______ as ______ increases. -decreases; the interest rate -decreases; government spending -increases; the interest rate -increases; government spending

decreases; the interest rate

According to classical theory, national income depends on ______, while Keynes proposed that ______ determines the level of national income. aggregate demand; aggregate supply monetary policy; fiscal policy aggregate supply; aggregate demand fiscal policy; monetary policy

aggregate supply; aggregate demand

According to the theory of liquidity preference, decreasing the money supply will ______ nominal interest rates in the short run, and, according to the Fisher effect, decreasing the money supply will ______ nominal interest rates in the long run. decrease; decrease decrease; increase increase; decrease increase; increase

increase; decrease

In the Keynesian-cross model, a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income. increases; increases decreases; decreases increases; decreases decreases; increases

increases; increases

John Maynard Keynes wrote that low income and high unemployment in economic downturns should be blamed on: an untrained labor force. inadequate technology. low levels of capital. low aggregate demand.

low aggregate demand.

Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that: -government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. -the government-spending multiplier is larger than the tax multiplier. -increases in government spending increase planned spending, but -tax cuts reduce planned spending. -government spending increases the MPC more than tax cuts.

the government-spending multiplier is larger than the tax multiplier.

According to the Keynesian-cross analysis, when there is a shift upward in the government-purchases schedule by an amount ΔG, then equilibrium income rises by: -ΔG. -ΔG divided by one minus the marginal propensity to consume. -one unit. -ΔG multiplied one plus the marginal propensity to consume.

ΔG divided by one minus the marginal propensity to consume.