Question 1

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) measures the change in consumption due to a change in income. MPC can be calculated by dividing the change in consumption by the change in income. Here, we have to find MPC when the autonomous consumption is $200, disposable income is $1000, and total consumption is $800. 
So, the change in consumption due to a change in income is
$800 - $200 = $600
$1000 - $200 = $800
Therefore, MPC = 600/800 = 0.75
The closest answer to 0.75 is B, which is 0.6. Therefore, the answer is B.

Question 2

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 represents the change in consumption caused by a change in disposable income. It is the slope of the consumption function and indicates the proportion of each additional dollar of disposable income that is spent on consumption.

Question 3

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 spending that is independent of income. It could include spending on basic needs or fixed expenses. The marginal propensity to consume (MPC) is the proportion of a change in income that is spent on consumption, and is represented separately in the equation. The expenditure multiplier is a concept used in Keynesian economics to explain the impact of government spending on the economy, and is not represented in this equation. Disposable income is represented as YD in the equation.

Question 4

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

In Keynesian analysis, aggregate demand (Yᵃᵈ) is composed of four components: consumer spending (C), investment spending (I), government spending (G), and net exports (NX), which is the difference between exports and imports. Thus, the correct formula is Yᵃᵈ = C + I + G + NX.

Question 5

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) is the fraction of a change in income that is spent. In other words, it measures how much a person or household will spend from each additional unit of income they receive.

Question 6

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

Given consumption function is C = 20 + 0.8YD, where YD is disposable income.

An increase of $100 in disposable income would mean YD increases by $100.

Substituting YD = $100 in the consumption function:

C = 20 + 0.8($100)

C = 20 + $80

C = $100

Therefore, an increase of $100 in disposable income will result in an increase of $80 in consumer expenditure.

Hence, the correct choice is C.

Question 7

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, consumer expenditure includes spending by individuals on goods and services for personal use, such as personal computers. Business spending, government spending, and foreign spending are not classified as consumer expenditure.

Question 8

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 9

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 particularly concerned with explaining the low level of output and employment during the Great Depression in the 1930s, as his theories and ideas aimed to address the issues of high unemployment and underutilization of resources during that time period.

Question 10

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 (marginal propensity to consume) = change in consumption/change in disposable income = ΔC/ΔYd

0.6 = ΔC/$1000

ΔC = $600

If total consumption is $800, then autonomous consumption (the amount of consumption that is independent of disposable income) is:

Autonomous consumption = total consumption - (MPC x disposable income)
= $800 - (0.6 x $1000)
= $800 - $600
= $200

Therefore, the answer is B) $200.

Question 11

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 shows that for every $1 increase in disposable income, consumer expenditure will increase by 0.5. Therefore, an increase of $100 in disposable income will result in a $50 increase in consumer expenditure (0.5 x 100 = $50). Thus, the correct answer is option C.

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 his aggregate output determination model in order to explain why the Great Depression occurred and how it could be resolved.

Question 13

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 most commonly associated with his explanation and proposed policy solutions for the low levels of output and employment during the Great Depression. His 1936 book "The General Theory of Employment, Interest, and Money" challenged classical economic theory and argued for government intervention to increase aggregate demand during times of economic downturn.

Question 14

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 directly related to disposable income, meaning that as disposable income increases, so will consumer spending. The other options listed may have an indirect effect on consumer spending, but disposable income is the most significant factor.

Question 15

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 fluctuations in aggregate output, which includes employment, were the key to understanding economic fluctuations. He advocated for government intervention, such as increasing government spending, to stimulate demand and increase employment during times of economic downturns.

Question 16

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 17

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 ratio of the change in consumption to the change in disposable income. In this case, the change in consumption is $200 (from $600 to $800) and the change in disposable income is $400, so the MPC is 200/400=0.5. Therefore, the answer is C.

Question 18

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 19

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 model assumes that although there may be an excess supply of goods and services in the short run, eventually, firms will increase their production until it meets the level of aggregate demand. Therefore, equilibrium output is determined by the level of aggregate demand in the economy.

Question 20

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 central idea in John Maynard Keynes' theory of macroeconomics, as outlined in his book "The General Theory of Employment, Interest, and Money."

Quiz 27: The IS Curve

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

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

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

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

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

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

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

Keynes was especially concerned with explaining the

Keynes reasoned that consumer expenditure is most closely related to

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.

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

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

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

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.