Question 1

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 developed his theories during the Great Depression of the 1930s, when there was a low level of output and high unemployment. Thus, he was especially concerned with explaining the low level of output and employment during the 1930s.

Question 2

Which of the following statements concerning Keynesian analysis is false? A)Keynes's 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. B)Keynes recognized that equilibrium would occur in the economy when total quantity of output supplied equals quantity of output demanded (Y^ad),that is,when Y = Y^ad. C)Keynes's analysis involves explaining why aggregate output is at a certain level by understanding what factors affect each component of aggregate demand and how the sum of these components could add up to an output smaller than the economy is capable of producing,resulting in less than full employment. D)Keynes's analysis explains how the price level will change when the total quantity of output supplied changes.

Accepted Answer

Keynesian analysis does not explain how the price level will change when the total quantity of output supplied changes. This is because Keynesian analysis focuses on explaining why an economy can be in a state of less than full employment and how government policy can be used to stimulate aggregate demand and increase output.

Question 3

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 work during the Great Depression, where he focused on explaining and addressing the low levels of output and employment that characterized this period.

Question 4

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 analysis is a key concept in the macroeconomic theory developed by John Maynard Keynes.

Question 5

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 to understanding the Great Depression and how to address similar economic situations. He argued that government policy could be used to increase employment and stimulate overall economic activity, which would in turn increase aggregate output. Therefore, choice B (aggregate output; employment) is the best answer.

Question 6

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" in the consumption function represents autonomous consumer expenditure, which is the level of consumer spending that is independent of changes in income.

Question 7

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

The answer of Under Keynesian analysis,aggregate demand can be written...

Question 8

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 where planned aggregate expenditure (PAE) equals actual aggregate output is where the economy is in equilibrium. PAE is the sum of consumption, investment, government spending, and net exports. Therefore, changes in any of these components can affect equilibrium aggregate output.

Question 9

Keynes argued that the sum of the components that comprise aggregate demand
A)could add up to an output smaller than the economy is capable of producing,thus resulting in less than full employment.
B)could add up to an output greater than the economy is capable of producing,thus resulting in less than full employment.
C)always equaled the output the economy is capable of producing.
D)equaled the output the economy is capable of producing by definition.

Accepted Answer

Keynes argued that in certain situations, the sum of the components of aggregate demand, namely consumption, investment, government spending, and net exports, could add up to an output smaller than the economy is capable of producing. This is known as a deficiency in aggregate demand which could result in less than full employment.

Question 10

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 mainly to explain why the Great Depression occurred, and how to solve it.

Question 11

Which of the following statements concerning Keynesian analysis are true? A)Keynes's 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,federal government spending,and state and local government spending. B)Keynes recognized that equilibrium would occur in the economy when total quantity of output supplied (aggregate output produced)equals quantity of output demanded (Y^ad),that is,when Y = Y^ad C)Keynes's analysis involves explaining why wage rates are at a certain level by understanding what factors affect labor demand and why this could cause output to be greater than the economy is capable of producing,resulting in high inflation. D)Keynes's analysis explains how the price level will change when the total quantity of output supplied changes.

Accepted Answer

The answer of Which of the following statements concerning Keynesian...

Question 12

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, or the income that individuals have after taxes and other mandatory payments are deducted. As disposable income increases, individuals have more money to spend and are therefore likely to increase their consumption expenditures.

Question 13

The simple Keynesian model illustrates the idea that the economy can come to rest at a level of aggregate output
A)only at the full employment level.
B)below the full employment level.
C)only when the price level is fixed.
D)only when wages are stable.

Accepted Answer

The simple Keynesian model assumes that prices are fixed in the short run, and that the level of aggregate expenditure determines the level of output. At any given level of aggregate expenditure, the model predicts a corresponding level of output. However, this level of output may not necessarily be at full employment, as there may be idle resources in the economy. Therefore, the simple Keynesian model suggests that the economy can come to rest at a level of aggregate output below the full employment level, where there is a gap between potential output and actual output.

Question 14

Because inflation was not a serious problem during the Great Depression,Keynes's analysis assumed
A)that unemployment also was not a problem.
B)that the money supply was fixed.
C)that the price level was fixed.
D)that monetary policy is not effective.

Accepted Answer

Keynes assumed that the price level was fixed during the Great Depression because inflation was not a significant concern. This allowed him to focus on the problem of unemployment and the need for government intervention to stimulate demand and create jobs.

Question 15

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

In the given consumption function, the coefficient of Y is 0.5, which means that for every $1 increase in disposable income (Y), consumption expenditure (C) will increase by $0.5. 
So, an increase in disposable income by $100 will result in an increase in consumer expenditure by:
0.5 x $100 = $50 
Hence, the correct answer is choice C) $50.

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) represents the proportion of a change in income that is spent on consumption, rather than being saved or invested. Therefore, choice A, "a change in income that is spent," is the most accurate definition of the marginal propensity to consume.

Question 17

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 includes spending by individuals or households on goods and services, such as personal computers for personal use. B, C, and D refer to spending by businesses, governments, and foreigners, respectively, which are not included in consumer expenditure.

Question 18

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

In the consumption function, MPC (marginal propensity to consume) represents the change in consumption as a result of a change in disposable income. It is the slope of the consumption function and indicates how much of each additional unit of income is spent on consumption. Therefore, option B is the correct answer. Option A (autonomous consumer expenditure) represents the level of consumption when disposable income is zero, and option C (the expenditure multiplier) represents the change in total output due to a change in autonomous expenditure. Option D (disposable income) is the total income minus taxes and represents the amount that is available for consumption and savings.

Question 19

In the simple Keynesian model of aggregate output determination,an equilibrium level of output below that necessary to maintain full employment can be explained by
A)minimum wage laws.
B)a generous level of unemployment benefits.
C)relatively low aggregate demand.
D)relatively high prices.

Accepted Answer

In the simple Keynesian model, equilibrium output is determined by the intersection of aggregate demand (spending) and aggregate supply (production). If aggregate demand is relatively low, then the equilibrium level of output will be below the level necessary to maintain full employment. This can lead to cyclical unemployment. A and B can impact employment levels, but they are not directly related to the equilibrium output level in the simple Keynesian model. High prices (D) would not result in a lower equilibrium output level, but rather a shift in the short-run aggregate supply curve.

Question 20

Keynes believed that an economy could attain an equilibrium level of output
A)only at the full-employment level of output.
B)below the full-employment level of output.
C)only if the government took a "hands off" approach.
D)only if prices were falling.

Accepted Answer

Keynes believed that an economy could attain an equilibrium level of output, even below the full-employment level of output, due to the possibility of underemployment equilibrium. This occurs when the aggregate demand is not enough to create jobs for all the available labor at the going wage rate, resulting in excess supply of labor, and thus, a lower level of output than would be otherwise possible.

Quiz 20: The Islm Model

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

Which of the following statements concerning Keynesian analysis is false?

Keynes was especially concerned with explaining the

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.

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

Under Keynesian analysis,aggregate demand can be written as

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

Keynes argued that the sum of the components that comprise aggregate demand

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

Which of the following statements concerning Keynesian analysis are true?

Keynes reasoned that consumer expenditure is most closely related to

The simple Keynesian model illustrates the idea that the economy can come to rest at a level of aggregate output

Because inflation was not a serious problem during the Great Depression,Keynes's analysis assumed

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

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

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

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

In the simple Keynesian model of aggregate output determination,an equilibrium level of output below that necessary to maintain full employment can be explained by

Keynes believed that an economy could attain an equilibrium level of output