Exam Nine

Question 1

According to the classical macroeconomic model discussed in the text, the key variable which adjusts to keep the economy in equilibrium when leakages are not equal to injections is…

Answer 1

the interest rate.

Question 2

According to the Keynesian macroeconomic model, consumption is a function of which three variables?

Answer 2

“Autonomous consumption, the marginal propensity to consume, and income”

Question 3

According to the Keynesian macroeconomic mode, the level of intended investment depends upon…

Answer 3

the level of optimism or pessimism among investors.

Question 4

In multiplier in the Keynesian macroeconomic model is a function of which variable?

Answer 4

The marginal propensity to consume

Question 5

In the case of insufficient aggregate demand, household savings is greater than…

Answer 5

intended investment.

Question 6

Suppose that Jane’s income increases from $30,000 per year to $35,000. At the same time, her consumption changes from $26,000 per year to $29,000 per year. What is Jane’s marginal propensity to save?

Answer 6

0.4

Question 7

Suppose the demand for loanable funds increases. According to the classical macroeconomic model, what would happen to the quantity of funds loaned and the interest rate?

Answer 7

The quantity of funds loaned would increase and the interest rate would also increase.

Question 8

Which one of the following statements BEST describes the relationship between interest rates and savings in the Keynesian macroeconomic model?

Answer 8

Higher interest rates may lead to higher or lower savings the effect is ambiguous.

Question 9

Which variable determines the slope of the aggregate demand (AD) curve in the Keynesian model of the macroeconomy?

Answer 9

The marginal propensity to consume

Question 10

Which one of the following variables is classified as an injection in the output-income-spending flow model presented in the text?

Answer 10

Intended investment

Question 11

T/F: According to Keynesian economists, the key variable that determines household saving rates is the interest rate.

Answer 11

False

Question 12

T/F: According to the classical macroeconomic model discussed in the text, whenever injections are not equal to leakages the wage rate will adjust to keep the macroeconomy in equilibrium.

Answer 12

False

Question 13

T/F: According to the Keynesian macroeconomic model, massive unemployment is possible when an economy is in a state of equilibrium.

Answer 13

True

Question 14

T/F: According to the Keynesian macroeconomic model, the level of intended business investment depends upon the inflation rate.

Answer 14

False

Question 15

T/F: According to the Keynesian model, injections will be kept equal to leakages through adjustment in the market for loanable funds.

Answer 15

False

Question 16

T/F: During the Great Depression the unemployment rate in the United States at times exceeded 20%

Answer 16

True

Question 17

T/F: In the Keynesian macroeconomic model aggregate demand is equal to the sum of consumption and income.

Answer 17

False

Question 18

T/F: It is generally expected that an economic downturn will lead to an increase in inflation.

Answer 18

False

Question 19

T/F: If intended business investment declines by $100 the Keynesian multiplier effect implies that total income will decrease by more than $100.

Answer 19

True

Question 20

T/F: Aggregate demand (in an economy with no government or foreign sector) is defined as consumption plus intended investment.

Answer 20

True