Question 1

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 is because according to the model, output will be produced as long as there is demand for it, and it will not be produced if there is no demand. Therefore, the level of aggregate demand determines the level of output in the economy.

Question 2

If the consumption function is C = 20 + 0.8YD,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

By substituting $100 for YD in the consumption function, we get: 
C = 20 + 0.8(100) = $100
Therefore, an increase in disposable income by $100 will result in an increase in consumer expenditure by $80, as shown in the consumption function.

Question 3

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 specifically concerned with explaining the low levels of output and employment during the 1930s, which was the time period of the Great Depression.

Question 4

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 change in consumption induced by a change in disposable income. MPC can be calculated using the formula:

MPC = Change in consumption / Change in disposable income

Here, we know that autonomous consumption (c) = $200 and disposable income (Yd) = $1,000. Total consumption (C) = $800.

So,

C = c + MPC * Yd

$800 = $200 + MPC * $1,000

MPC = ($800 - $200) / $1,000 = 0.6

Therefore, the answer is B, 0.6.

Question 5

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 was primarily concerned with explaining the low levels of output and employment during the Great Depression.

Question 6

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

Accepted Answer

"a" represents autonomous consumer expenditure, which is the portion of consumer expenditure that does not depend on disposable income. The term "mpc × YD" represents the portion of consumer expenditure that is directly related to disposable income.

Question 7

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 8

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

Using the formula:
Total Consumption = Autonomous Consumption + (MPC * Disposable Income)
We can rearrange it to solve for Autonomous Consumption:
Autonomous Consumption = Total Consumption - (MPC * Disposable Income)
Plugging in the given values:
Autonomous Consumption = $800 - (0.6 * $1000) = $200. Therefore, the answer is choice letter B.

Question 9

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 statement aligns with John Maynard Keynes' theory of aggregate demand, which states that total demand in an economy is determined by the sum of consumption, investment, government spending, and net exports.

Question 10

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, as he believed it was crucial for understanding the causes of the Great Depression and for developing policies to increase employment in a similar economic situation. He believed that government intervention, such as increasing spending and reducing taxes, could help stimulate aggregate demand and increase employment levels. Therefore, choice B is the best option, as it accurately reflects Keynes' core concerns and ideas.

Question 11

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 amount of a change in income that is spent on consumption. Therefore, option A is the correct choice. Option B, C, and D are incorrect because they do not appropriately define the concept of marginal propensity to consume.

Question 12

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 developed the aggregate output determination model primarily to explain why the Great Depression occurred and how to prevent such crises in the future.

Question 13

If the consumption function is C = 20 + 0.5YD,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

If the consumption function is C = 20 + 0.5YD, then we can use it to determine the change in consumer expenditure resulting from a change in disposable income:

ΔC = 0.5 ΔYD

ΔYD = $100, so:

ΔC = 0.5($100) = $50

Therefore, an increase in disposable income of $100 will result in an increase in consumer expenditure of $50. The correct answer is choice C.

Question 14

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 15

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

MPC or Marginal Propensity to Consume is the change in consumption corresponding to a change in disposable income.

In this case, we can calculate the MPC as follows:

MPC = Change in Consumption / Change in Disposable Income
MPC = (800 - 600) / 400
MPC = 200 / 400
MPC = 0.5

Therefore, the answer is C) 0.5.

Question 16

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

Accepted Answer

The "mpc" in the consumption function represents the marginal propensity to consume, which is the fraction of each additional dollar of income that is spent on consumption. Therefore, option B is the correct choice. Option A is incorrect because "a" represents autonomous consumer expenditure, which is the amount of spending that is independent of income. Option C is incorrect because the expenditure multiplier refers to the increase in total spending that results from an initial increase in autonomous expenditure. Option D is incorrect because YD represents disposable income, which is income after taxes and transfers have been taken out.

Question 17

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 18

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

Accepted Answer

According to Keynesian analysis, aggregate demand is the sum of consumption (C), investment (I), government spending (G), and net exports (NX), which can be represented as Yad = C + I + G + NX.

Question 19

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 closely related to disposable income, as individuals can only spend what they have available after taxes and other expenses. Interest rates and the price level may also affect consumer behavior, but disposable income is the most fundamental factor. The marginal tax rate may have an indirect impact on disposable income, but it is not as directly related as the level of income itself.

Question 20

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 in the Keynesian model refers to spending by households on goods and services. Therefore, the only option that fits this definition is A, which refers to consumers purchasing personal computers. Choices B, C, and D all refer to spending by entities other than households.

Quiz 20: The Is Curve

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

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

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

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

Keynes was especially concerned with explaining the

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

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

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

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 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.

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

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

If the consumption function is C = 20 + 0.5YD,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

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 expressed as C = a + mpc × YD,then "mpc" represents

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

Under Keynesian analysis,aggregate demand can be written as

Keynes reasoned that consumer expenditure is most closely related to

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