Question 1

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 amount of consumption that exists independent of disposable income. It is also known as the intercept of the consumption function.

Question 2

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 in the short-run, prices are assumed to be inflexible or sticky, so changes in aggregate demand lead to changes in output and employment rather than changes in prices. Therefore, the level of aggregate demand ultimately determines the equilibrium level of output.

Question 3

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 4

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

According to Keynes' theory, consumer expenditure is most closely related to disposable income. This is because disposable income determines the amount of money that households have available for spending on goods and services after taxes, and therefore has a strong influence on overall consumer demand in the economy. Factors such as interest rates, the price level, and the marginal tax rate may also affect consumer expenditure indirectly, but disposable income is considered the most direct and significant factor.

Question 5

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 primarily concerned with explaining the low level of output and employment during the 1930s, which was a time period characterized by the Great Depression.

Question 6

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 (Marginal Propensity to Consume) is the change in consumption due to a change in disposable income. Here, the change in disposable income is $400 and the change in consumption is $200 ($800-$600). Therefore, MPC = change in consumption/change in disposable income = $200/$400 = 0.5. Therefore, the correct answer is C) 0.5.

Question 7

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 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

The formula for calculating consumption is:

C = Autonomous Consumption + (MPC x Disposable Income)

We know that Disposable Income = $1000 and MPC = 0.6. 
We also know that Total Consumption = $800.

Therefore, plugging in the numbers:

$800 = Autonomous Consumption + (0.6 x $1000) 
$800 = Autonomous Consumption + $600 
Autonomous Consumption = $200

So, choice B is the correct answer as autonomous consumption is $200.

Question 9

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

The formula for calculating the marginal propensity to consume (MPC) is:
MPC = change in consumption / change in disposable income
Here, autonomous consumption is given as $200.
Total consumption is given as $800, which means that it includes both autonomous consumption and induced consumption.
Hence, induced consumption = total consumption - autonomous consumption
Induced consumption = $800 - $200 = $600
Disposable income = $1000
So, induced consumption is the portion of the consumption that is induced by the change in disposable income. Therefore, change in consumption = induced consumption = $600.
Change in disposable income = $1000 - $0 = $1000
Now, we can plug these values into the MPC formula:
MPC = change in consumption / change in disposable income
MPC = $600 / $1000
MPC = 0.6
Therefore, the answer is B) 0.6.

Question 10

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

MPC stands for marginal propensity to consume, which refers to the fraction of additional disposable income that a household spends on consumption. It is the slope of the consumption function and measures the responsiveness of consumption to changes in income.

Question 11

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 the fundamental principle of Keynesian economics, as outlined in John Maynard Keynes' book "The General Theory of Employment, Interest and Money". Hicks, Friedman, and Samuelson may have contributed to the development of Keynesian economics, but this specific analysis is attributed to Keynes.

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 was motivated to develop the aggregate output determination model in order to explain why the Great Depression occurred.

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

The consumption function states that consumer expenditure (C) is equal to 20 plus half of disposable income (0.5YD).

If disposable income (YD) increases by $100, then:

C = 20 + 0.5(YD + $100)
C = 20 + 0.5YD + $50
C = $70 + 0.5YD

Therefore, an increase in disposable income by $100 will result in an increase in consumer expenditure by $50.

Question 14

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 believed that movements in aggregate output (GDP) were crucial in understanding economic changes and the occurrence of the Great Depression. He also believed that government policy, specifically increasing government spending or cutting taxes, could increase employment and stimulate economic growth during times of recession or depression.

Question 15

Under Keynesian analysis,aggregate demand can be written as ________.
A) $ Y a d=C+I+G+N X $
B) $ \mathrm{Yad}=\mathrm{C}+\mathrm{I}+\mathrm{G}-\mathrm{NX} $
C) $ Y a d=C-I-G-N X $
D) $ \mathrm{Yad}=\mathrm{C}+\mathrm{I}-\mathrm{G}-\mathrm{NX} $

Accepted Answer

Aggregate demand is the total demand for goods and services in an economy. Under Keynesian analysis, aggregate demand can be written as $ Y a d=C+I+G+N X $, where C is consumption, I is investment, G is government spending, and NX is net exports.

Question 16

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) refers to the fraction or percentage of a change in income that is spent. For example, if an individual’s income increases by $100 and they choose to spend $80 of it, the marginal propensity to consume would be 0.8 or 80%.

Question 17

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

The consumption function is:
C = 20 + 0.8YD
Where C is consumer expenditure and YD is disposable income.
If YD increases by $100, then:
ΔYD = $100
ΔC = 0.8 × ΔYD
ΔC = 0.8 × $100
ΔC = $80
Therefore, an increase in disposable income by $100 will result in an increase in consumer expenditure by $80. So, the best choice is C.

Question 18

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' most influential work, The General Theory of Employment, Interest and Money, was written in response to the low levels of output and employment during the Great Depression.

Question 19

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

In the Keynesian model of income determination, consumer expenditure refers to spending by households on goods and services. Therefore, spending on personal computers by individual consumers would be included in consumer expenditure. Business spending on personal computers would not be considered consumer expenditure as it is categorized as investment spending, while government spending on personal computers is considered government expenditure. Foreign spending on domestic personal computers is categorized as net exports.

Question 20

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.

Quiz 22: The Is Curve

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

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

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 ________.

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

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 ________.

Everything else held constant,if consumption expenditure increases by 65 for a 100 increase in disposable income,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 ________.

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

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

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 ________.

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 ________.

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.

Under Keynesian analysis,aggregate demand can be written as ________.

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

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 ________.

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

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