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The key assumption of the basic Keynesian model is that in the short run, firms:
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meet demand at preset prices. |
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adjust prices to bring sales in line with capacity. |
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change prices frequently. |
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operate just as they do in the long run. |
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change prices rather than quantities. |
Question 2
Suppose a household’s marginal propensity to consume out of disposable income is 0.75 and its exogenous consumption is $250. If household income is $2000 and taxes are a flat $200, how much will the household save each period?
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$200. |
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$250. |
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$400. |
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$1,000. |
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$1,500. |
Question 3
A$100 million increase in government purchases will have a bigger impact on equilibrium output
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The larger are the marginal tax rate and marginal propensity to import and the larger is the marginal propensity to consume. |
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The larger are the marginal tax rate and marginal propensity to import and the smaller is the marginal propensity to consume. |
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The smaller are the marginal tax rate and marginal propensity to import and the smaller is the marginal propensity to consume. |
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The smaller are the marginal tax rate and marginal propensity to import and the larger is the marginal propensity to consume. |
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The smaller are the marginal tax rate and marginal propensity to consume and the larger is the marginal propensity to import. |
Question 4
If the marginal propensity to consume equals 0.75, then a $100 increase in after-tax disposable income leads to a _____ increase in consumption.
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$0.25 |
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$0.75 |
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$25 |
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$75 |
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$100 |
Question 5
Planned aggregate expenditure is total:
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value added in the economy. |
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planned spending on final goods and services. |
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revenue from the sale of goods and services. |
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profits in the economy. |
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output produced by firms |
Question 6
The amount by which consumption increases when disposable income increases by $1 is called:
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an automatic stabiliser. |
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the consumption function. |
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the marginal propensity to consume. |
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autonomous expenditure. |
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the multiplier. |
Question 7
In the basic Keynesian model, all but one of the following are true. Which is the exception?
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Planned consumption always equals actual consumption. |
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Planned investment always equals actual investment. |
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Planned government spending always equals actual government spending. |
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Planned net exports always equal actual net exports. |
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Planned aggregate expenditure is always equal to output. |
Question 8
If planned aggregate expenditure (PAE) in an economy equals 2000 + 0.8Y and potential output (Y*) equals 9000, then this economy has:
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an expansionary gap. |
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a recessionary gap. |
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No output gap. |
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no autonomous expenditure. |
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no induced expenditure. |
Question 9
In the short-run Keynesian model, in order to close a recessionary gap of $10 billion dollars, government purchases must be
Answer
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increased by $10 billion. |
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decreased by $10 billion. |
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increased by more than $10 billion. |
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increased by less than $10 billion. |
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decreased by $10 billion while taxes must be cut by $10 billion. |
Question 10
If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the MPC equals .8, and potential output (Y*) equals 9000, then taxes must ______ by ________ to eliminate any output gap.
Answer
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decrease, 20 |
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decrease, 200 |
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increase, 225 |
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increase, 250 |
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increase, 200 |
Question 11
Fiscal policy is NOT often used as a stabilisation tool. However, it does have important roles in the economy. Three of these roles are:
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managing income distribution, demographic change, and public debt |
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managing public assets, defence projects, and public safety |
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managing government monetary policy, inflation and interest rates |
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managing collection of taxes, public health and antiterrorism policy |
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managing full employment, price stability and exchange rates. |
Question 12
Dave’s Mirror Company expects to sell $1,000,000 worth of mirror and to produce $1,250,000 worth of mirrors in the coming year. The company purchases $300,000 of new equipment during the year. Sales for the year turn out to be $900,000. Actual investment by Dave’s Mirror Company equals _____ and planned investment equals _______.
Answer
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$250,000; $150,000. |
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$300,000; $200,000. |
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$650,000; $550,000. |
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$850,000; $750,000. |
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$950,000;$500,000. |
1 points
Question 13
When actual investment is less than planned investment
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firms are selling less output than expected. |
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firms are selling more output than expected. |
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the quantity of output sold is the amount the firm expected to sell. |
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autonomous expenditure is less than induced expenditure. |
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the stock of inventories must increase. |
Question 14
An increase in government purchases will have a larger effect on real GDP:
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the larger the MPC |
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the smaller the MPC |
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the larger a tax increase |
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the smaller a tax decrease |
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the larger the MPS. |
Question 15
Because of automatic stabilisers, when GDP fluctuates the:
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government’s budget remains in balance |
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government’s deficit fluctuates directly with GDP |
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government’s deficit fluctuates inversely with GDP |
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the economy will automatically go to full employment |
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none of the above. |
Question 16
The short-run effect of equilibrium GDP of an equal change in government expenditure and net taxes is a definition of:
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the balanced budget |
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the balanced budget multiplier |
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balanced GDP |
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balanced growth |
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balanced savings |
Question 17
If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ____ and the money supply is _____.
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200; 600 |
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400; 800 |
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600; 1000 |
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800; 1200 |
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none of the above. |
Question 18
When the Reserve Bank sells government securities, the banks’
Answer
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reserves will increase and lending will expand, causing an increase in the money supply. |
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reserves will decrease and lending will contract, causing a decrease in the money supply. |
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reserve requirements will increase and lending will contract, causing a decrease in the money supply. |
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reserves/deposit ratio will increase and lending will expand, causing an increase in the money supply. |
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reserves will increase and lending will contract, causing no change in the money supply. |
Question 19
One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5% paid annually fell to $981. The one-year interest rate
Answer
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rose to 8.5%. |
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rose to 7.0%. |
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rose to 6.0%. |
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remained at 5%. |
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none of the above. |
Question 20
If real GDP equals 5000, nominal GDP equals 10,000 and the price level equals 2, then what is velocity if the money stock equals 2000?
Answer
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2 |
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2.5 |
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4 |
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5 |
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10 |
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