Question 1

The vertical intercept of the consumption function equals ______ and the slope equals _____.

Accepted Answer

A)   the mpc; autonomous consumption
B)   autonomous consumption; the mpc
C)   the unplanned component of consumption; the planned component of consumption
D)   the planned component of consumption; the unplanned component of consumptionE) A) and D)
F) None of the above

Question 2

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n) :

Accepted Answer

A)   expansionary output gap.
B)   recessionary output gap.
C)   increase in potential output.
D)   decrease in potential output.E) B) and C)
F) A) and D)

Question 3

In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under President Bush, was composed of approximately _____; the American Recovery and Reinvestment Act, under President Obama, was composed of approximately ______.

Accepted Answer

A)   one-fourth tax cuts and three-fourths spending increases; two-thirds tax cuts and one-third spending increases
B)   half tax cuts and half spending increases; only spending increases
C)   two-thirds tax cuts and one-third spending increases; one-fourth tax cuts and three-fourths spending increases
D)   only tax cuts; half tax cuts and half spending increasesE) A) and B)
F) A) and C)

Question 4

For an economy starting at potential output, an increase in planned investment in the short run results in a(n) :

Accepted Answer

A)   expansionary output gap.
B)   recessionary output gap.
C)   increase in potential output.
D)   decrease in potential output.E) A) and D)
F) All of the above

Question 5

If the marginal propensity to consume equals 0.75, then a $100 increase in after-tax disposable income leads to a ______ increase in consumption.

Accepted Answer

A)   $13.33
B)   $25
C)   $75
D)   $133E) B) and D)
F) C) and D)

Question 6

Changes in autonomous consumption could be the result of:

Accepted Answer

A)   changes in disposable income.
B)   changes in inflation.
C)   changes in the mpc.
D)   changes in housing prices.E) A) and D)
F) C) and D)

Question 7

In the Keynesian cross diagram, the vertical intercept of the expenditure line equals ______ and the slope of the expenditure line equals _____.

Accepted Answer

A)   induced expenditures; autonomous expenditures
B)   autonomous expenditures; induced expenditures
C)   planned spending; unplanned spending
D)   autonomous expenditures; the mpcE) A) and B)
F) None of the above

Question 8

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, transfers must be:

Accepted Answer

A)   increased by $1 billion.
B)   decreased by $1 billion.
C)   increased by $1.33 billion.
D)   decreased by $1.33 billion.E) C) and D)
F) A) and C)

Question 9

The two parts of planned aggregate expenditure are ______ expenditures and ______ expenditures.

Accepted Answer

A)   real; nominal
B)   inflated; deflated
C)   autonomous; induced
D)   positive; normativeE) A) and B)
F) A) and C)

Question 10

The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ______ is built.

Accepted Answer

A)   the basic Keynesian model
B)   Okun's Law
C)   the supply and demand model
D)   quantity equation for moneyE) All of the above
F) B) and C)

Question 11

In the basic Keynesian model, a tax cut:

Accepted Answer

A)   reduces short-run equilibrium output.
B)   increases short-run equilibrium output.
C)   reduces potential output.
D)   increases potential output.E) A) and B)
F) None of the above

Question 12

As disposable income decreases, consumption:

Accepted Answer

A)   increases.
B)   decreases.
C)   may either increase or decrease depending on the mpc.
D)   may either increase or decrease depending on the wealth effect.E) A) and D)
F) B) and C)

Question 13

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, the ensuing financial crisis:

Accepted Answer

A)   made it difficult for government to finance deficit spending.
B)   led to widespread inflation.
C)   increased the level of uncertainty about the future.
D)   shifted the PAE line upward.E) B) and D)
F) B) and C)

Question 14

Induced expenditure is the portion of planned aggregate expenditure that:

Accepted Answer

A)   equals aggregate output.
B)   equals planned spending.
C)   equals autonomous expenditure.
D)   depends on output.E) B) and D)
F) B) and C)

Question 15

In the short run with predetermined prices, when output is less than planned aggregate expenditure:

Accepted Answer

A)   potential output is greater than short-run equilibrium output.
B)   potential output is less than short-run equilibrium output.
C)   planned investment is less than actual investment.
D)   planned investment is greater than actual investment.E) B) and D)
F) A) and B)

Question 16

The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect.

Accepted Answer

A)   income
B)   substitution
C)   wealth
D)   multiplierE) B) and D)
F) A) and D)

Question 17

In the short run with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

Accepted Answer

A)   reduce production.
B)   increase production.
C)   increase planned aggregate expenditure.
D)   decrease planned aggregate expenditure.E) A) and C)
F) B) and C)

Question 18

Regarding the fiscal policy responses to the 2007-2009 recession, the Congressional Budget Office (CBO)  found that:

Accepted Answer

A)   the Bush Administration's fiscal policy worked, but the Obama Administration's did not.
B)   the Obama Administration's fiscal policy worked, but the Bush Administration's did not.
C)   both the Bush Administration's fiscal policy and the Obama Administration's fiscal policy worked.
D)   neither the Bush Administration's fiscal policy nor the Obama Administration's fiscal policy worked.E) A) and B)
F) A) and C)

Question 19

The slope of the consumption function:

Accepted Answer

A)   is vertical.
B)   is horizontal.
C)   equals 1.
D)   equals the mpc.E) B) and C)
F) A) and C)

Question 20

When real output decreases, planned aggregate expenditures decrease because:

Accepted Answer

A)   autonomous expenditures increase.
B)   autonomous expenditures decrease.
C)   induced expenditures increase.
D)   induced expenditures decrease.E) A) and B)
F) B) and D)

Exam 11: Financial Markets and International Capital Flows

Changes in autonomous consumption could be the result of:

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The vertical intercept of the consumption function equals ______ and the slope equals _____.

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The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, the ensuing financial crisis:

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The two parts of planned aggregate expenditure are ______ expenditures and ______ expenditures.

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The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect.

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Induced expenditure is the portion of planned aggregate expenditure that:

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When real output decreases, planned aggregate expenditures decrease because:

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In the short run with predetermined prices, when output is less than planned aggregate expenditure:

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As disposable income decreases, consumption:

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For an economy starting at potential output, an increase in planned investment in the short run results in a(n) :

Correct AnswerverifiedShow Answer

In the basic Keynesian model, a tax cut:

Correct AnswerverifiedShow Answer

If the marginal propensity to consume equals 0.75, then a $100 increase in after-tax disposable income leads to a ______ increase in consumption.

Correct AnswerverifiedShow Answer

In the short run with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

Correct AnswerverifiedShow Answer

In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under President Bush, was composed of approximately _____; the American Recovery and Reinvestment Act, under President Obama, was composed of approximately ______.

Correct AnswerverifiedShow Answer

In the Keynesian cross diagram, the vertical intercept of the expenditure line equals ______ and the slope of the expenditure line equals _____.

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The slope of the consumption function:

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In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, transfers must be:

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The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ______ is built.

Correct AnswerverifiedShow Answer

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n) :

Correct AnswerverifiedShow Answer

Regarding the fiscal policy responses to the 2007-2009 recession, the Congressional Budget Office (CBO) found that:

Correct AnswerverifiedShow Answer

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The vertical intercept of the consumption function equals __ and the slope equals _.

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The two parts of planned aggregate expenditure are expenditures and expenditures.

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In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under President Bush, was composed of approximately _; the American Recovery and Reinvestment Act, under President Obama, was composed of approximately __.

Correct Answer
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In the Keynesian cross diagram, the vertical intercept of the expenditure line equals __ and the slope of the expenditure line equals _.

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