Graded Quiz 8

The formula for the simple spending multiplier is:

1/(1 - MPC).

Which of the following equations is correct?

AE= C+I+G+X-M

_____ is the change in consumption associated with a change in income.

The marginal propensity to consume

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

aggregate spending

According to Keynes, as income grows:

both consumption spending and saving grow.

If the stock market collapses, consumption will:

decrease because people feel less wealthy.

Saving is equal to:

disposable income minus consumption.

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____.

disposable income; consumption

MPC + MPS:

equals 1.

As income increases, consumption ______

increases at a slower rate

The spending reduction necessary to bring an overheated economy back to full employment is called the:

inflationary gap.

The GDP gap divided by the multiplier yields the:

inflationary or recessionary gap.

In the simple Keynesian model, equilibrium exists when:

investment spending equals saving.

When taxes are decreased, disposable income _______ and consumption spending ______________ multiplied by the change in disposable income.

rises; rises by the marginal propensity to consume

When the economy is in equilibrium in the simple Keynesian model:

saving is equal to investment.

Consumption spending is:

spending by individuals and households on both durable and nondurable goods.

Between 1929 and 1933, government spending _____ and net exports _____.

stayed the same; declined

Investment spending:

tends to be volatile.

Aggregate expenditures are equal to:

the total of consumption plus investment plus government expenditures plus exports minus imports.

A depression economy has considerable slack, so:

unemployment is high