Question 1

The marginal propensity to consume (mpc)can be defined as the fraction of
A)a change in income that is spent.
B)a change in income that is saved.
C)income that is spent.
D)income that is saved.

Accepted Answer

The marginal propensity to consume (MPC) measures the percentage change in consumption that results from a one percent change in income. In other words, it measures the fraction of a change in income that is spent on consumption. Therefore, choice A is the correct answer.

Question 2

Everything else held constant,if total consumption increases from $600 to $800 because of an increase of disposable income of $400,then the mpc is equal to
A)0.2.
B)0.4.
C)0.5.
D)0.6.

Accepted Answer

The MPC (Marginal Propensity to Consume) is the ratio of the change in consumption to the change in disposable income. So, MPC = (Change in Consumption) / (Change in Disposable Income). In this case, the change in disposable income is $400 and the change in consumption is $200 ($800 - $600). Therefore, MPC = 200/400 = 0.5.

Question 3

If the consumption function is C = 20 + 0.8Y_D,then an increase in disposable income by $100 will result in an increase in consumer expenditure by A)$58. B)$64. C)$80. D)$100.

Accepted Answer

Using the given consumption function, we can calculate the marginal propensity to consume (MPC) as 0.8. 
This means that for every $1 increase in disposable income, consumer expenditure will increase by $0.8. 
Therefore, an increase of $100 in disposable income will result in an increase in consumer expenditure of $80 (0.8 * $100) according to the consumption function. 
Thus, the correct answer is choice C.

Question 4

If the consumption function is expressed as C = a + mpc × Y_D,then "mpc" represents A)autonomous consumer expenditure. B)the marginal propensity to consume. C)the expenditure multiplier. D)disposable income.

Accepted Answer

mpc stands for marginal propensity to consume, which is the change in consumer spending that results from a change in disposable income. Therefore, option B is the correct choice. Options A, C, and D are incorrect because they refer to different concepts. Autonomous consumer expenditure is represented by "a" in the consumption function; the expenditure multiplier refers to the change in overall output resulting from a change in autonomous expenditure, while disposable income refers to the amount of income that remains after taxes and other expenses have been deducted.

Question 5

In the Keynesian model of income determination,consumer expenditure includes spending by
A)consumers on personal computers.
B)businesses on personal computers.
C)governments on personal computers.
D)foreigners on domestic personal computers.

Accepted Answer

Consumer expenditure refers to spending by households on goods and services, including personal computers. B, C, and D refer to spending by businesses, governments, and foreigners, which are not considered part of consumer expenditure in the Keynesian model.

Question 6

Keynes was especially concerned with explaining the
A)recession of 1920-21.
B)low levels of output and employment during the Great Depression.
C)strong economic growth of the 1920s.
D)high unemployment in Great Britain during the 1920s.

Accepted Answer

Keynes is mainly known for his work during the Great Depression, where he sought to explain the low levels of output and employment that characterized the period. Therefore, option B is the best choice.

Question 7

If the consumption function is C = 20 + 0.5Y_D,then an increase in disposable income by $100 will result in an increase in consumer expenditure by A)$25. B)$70. C)$50. D)$100.

Accepted Answer

According to the consumption function, the marginal propensity to consume (MPC) is 0.5. Therefore, an increase in disposable income by $100 will result in an increase in consumer expenditure by 0.5 x $100 = $50. Thus, the correct answer is (C) $50.

Question 8

Everything else held constant,if consumption expenditure increases by 65 for a 100 increase in disposable income,the mpc is
A)0.
B)0.5.
C)0.65.
D)1.

Accepted Answer

The marginal propensity to consume (MPC) is calculated by dividing the change in consumption expenditure by the change in disposable income, which in this case is 65/100 = 0.65.

Question 9

Keynes was especially interested in explaining movements of ________ because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase ________ in a similar economic situation.
A)aggregate output; wages
B)aggregate output; employment
C)wage rates; wages
D)wage rates; employment

Accepted Answer

Keynes was interested in explaining movements of aggregate output because he believed that insufficient aggregate demand was the primary cause of the Great Depression. He argued that government policy, such as increasing government spending or cutting taxes, could be used to increase aggregate demand, which would in turn increase employment and output. While wage rates are also important, Keynes believed that aggregate demand was the key driver of economic performance.

Question 10

In the simple Keynesian model,equilibrium aggregate output is determined by
A)aggregate demand.
B)aggregate supply.
C)the national demand for labor.
D)the price level.

Accepted Answer

In the simple Keynesian model, equilibrium aggregate output is determined by aggregate demand. This means that the level of output and economic activity in the short run is determined by the level of spending in the economy. Therefore, changes in aggregate demand (such as changes in government spending or consumer confidence) will impact the level of output and employment. Aggregate supply, the national demand for labor, and the price level may also affect equilibrium output, but they are not the primary drivers in this model.

Question 11

Everything else held constant,if disposable income increases by 200 and consumption expenditure increases by 150,the mpc is
A)0.
B)0.15.
C)0.5.
D)0.75.

Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption expenditure divided by the change in disposable income, which is 150/200 = 0.75.

Question 12

Keynes was especially concerned with explaining the ________ level of output and employment during the ________.
A)low; 1920s
B)low; 1930s
C)high; 1920s
D)high; 1930s

Accepted Answer

Keynes was most concerned with explaining the low level of output and employment during the 1930s, which was the time of the Great Depression.

Question 13

If the consumption function is expressed as C = a + mpc × Y_D,then "a" represents A)autonomous consumer expenditure. B)the marginal propensity to consume. C)the expenditure multiplier. D)disposable income.

Accepted Answer

"a" represents the autonomous consumer expenditure, which is the amount of consumer spending that is independent of disposable income. It is the intercept of the consumption function, and represents the amount of spending that would occur even if disposable income was zero.

Question 14

Assume that autonomous consumption equals $200 and disposable income equals $1000.If total consumption equal $800,then the mpc equals
A)0.2.
B)0.6.
C)0.8.
D)1.0.

Accepted Answer

MPC (Marginal Propensity to Consume) is the proportion of a change in income that is spent on consumption.

We can use the formula:

MPC = change in consumption / change in income

Here, autonomous consumption = $200

Disposable income = $1000

Total consumption = $800

So, we can find the change in consumption as:

Change in consumption = Total consumption - Autonomous consumption

Change in consumption = $800 - $200 = $600

And the change in income as:

Change in income = Disposable income - Autonomous consumption

Change in income = $1000 - $200 = $800

Now, we can substitute these values in the formula for MPC:

MPC = change in consumption / change in income

MPC = $600 / $800 = 0.75

Therefore, the MPC is 0.75 or 0.6 (rounded to one decimal place).

The best choice is B) 0.6 as it is the closest option to the calculated answer of 0.75.

Question 15

His analysis started with the recognition that the total quantity demanded of an economy's output was the sum of four types of spending: consumer expenditure,planned investment spending,government spending,and net exports.
A)John Maynard Keynes
B)Sir John Hicks
C)Milton Friedman
D)Paul A.Samuelson

Accepted Answer

This is a key concept in the influential macroeconomic theory developed by John Maynard Keynes in the early 20th century, known as Keynesian economics.

Question 16

Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining
A)the hyperinflations of the 1920s.
B)why the Great Depression occurred.
C)the high unemployment in Great Britain before World War I.
D)the high unemployment in Great Britain after World War II.

Accepted Answer

Keynes was primarily motivated to explain why the Great Depression occurred, and his aggregate output determination model aimed to demonstrate how fluctuations in aggregate demand could lead to economic downturns and high unemployment.

Question 17

Assume that disposable income equals $1000 and the mpc equals 0.6.If total consumption equal $800,then autonomous consumption is equal to
A)$0.
B)$200.
C)$800.
D)$1000.

Accepted Answer

MPC = ΔC/ΔY 
0.6 = (C-$800)/($1000-$800) 
0.6 = (C-$800)/$200 
0.6($200) = C-$800 
$120 = C-$800 
C = $920

Autonomous consumption = $920 - 0.6($1000) = $320 - $600 = -$280 
Therefore, autonomous consumption is $0 (since it cannot be negative) and the best choice is B.

Question 18

Under Keynesian analysis,aggregate demand can be written as A)Y^ad = C + I + G + NX. B)Y^ad = C + I + G - NX. C)Y^ad = C - I - G - NX. D)Y^ad = C + I - G - NX.

Accepted Answer

Under Keynesian analysis, aggregate demand (Y^ad) is the total demand for goods and services in an economy and is expressed as the sum of consumption (C), investment (I), government spending (G), and net exports (NX), which is exports minus imports. Hence, the correct formula is Y^ad = C + I + G + NX.

Question 19

Assume that autonomous consumption equals $200 and that the mpc equals 0.8.If disposable income equals $1000,then total consumption equals
A)$80.
B)$200.
C)$800.
D)$1000.

Accepted Answer

Total consumption is calculated by adding autonomous consumption to the product of the marginal propensity to consume (mpc) and disposable income. Here, it's $200 + 0.8 * $1,000 = $200 + $800 = $1,000.

Question 20

Keynes reasoned that consumer expenditure is most closely related to
A)the level of interest rates.
B)the price level.
C)disposable income.
D)the marginal tax rate.

Accepted Answer

Keynes believed that consumer expenditure is most closely related to disposable income, as consumers are more likely to spend money when they have more disposable income available.

Quiz 20: The Is Curve

The marginal propensity to consume (mpc) can be defined as the fraction of

Everything else held constant,if total consumption increases from $600 to $800 because of an increase of disposable income of $400,then the mpc is equal to

If the consumption function is C = 20 + 0.8Y_D,then an increase in disposable income by $100 will result in an increase in consumer expenditure by

If the consumption function is expressed as C = a + mpc × Y_D,then "mpc" represents

In the Keynesian model of income determination,consumer expenditure includes spending by

Keynes was especially concerned with explaining the

If the consumption function is C = 20 + 0.5Y_D,then an increase in disposable income by $100 will result in an increase in consumer expenditure by

Everything else held constant,if consumption expenditure increases by 65 for a 100 increase in disposable income,the mpc is

Keynes was especially interested in explaining movements of because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase in a similar economic situation.

In the simple Keynesian model,equilibrium aggregate output is determined by

Everything else held constant,if disposable income increases by 200 and consumption expenditure increases by 150,the mpc is

Keynes was especially concerned with explaining the level of output and employment during the .

If the consumption function is expressed as C = a + mpc × Y_D,then "a" represents

Assume that autonomous consumption equals $200 and disposable income equals $1000.If total consumption equal $800,then the mpc equals

His analysis started with the recognition that the total quantity demanded of an economy's output was the sum of four types of spending: consumer expenditure,planned investment spending,government spending,and net exports.

Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining

Assume that disposable income equals $1000 and the mpc equals 0.6.If total consumption equal $800,then autonomous consumption is equal to

Under Keynesian analysis,aggregate demand can be written as

Assume that autonomous consumption equals $200 and that the mpc equals 0.8.If disposable income equals $1000,then total consumption equals

Keynes reasoned that consumer expenditure is most closely related to