Question 1

How does the simple Keynesian model differ from the classical approach to analyzing saving?

Accepted Answer

The answer of How does the simple Keynesian model differ...

Question 2

The multiplier for imports is larger than the multiplier for exports.

Accepted Answer

The multiplier for exports is typically larger because exports add directly to a country's GDP, generating additional economic activity through the multiplier effect. Imports, on the other hand, represent an outflow of funds from a country, which can reduce the domestic money supply and potentially decrease the multiplier effect.

Question 3

When the foreign sector,government spending,and taxes are added to the simple Keynesian model,at equilibrium all injections must equal all withdrawals,as stated by the equation I + G + X = S + T + M.

Accepted Answer

This is correct as the equation I + G + X = S + T + M represents the equilibrium condition for the economy where all injections (I+G+X) must equal all withdrawals (S+T+M).

Question 4

The balanced budget multiplier equals 1.

Accepted Answer

The answer of The balanced budget multiplier equals 1....

Question 5

The full Keynesian model illustrates the importance of spending in an economy whose investment,government spending,and exports all increase income,while saving,taxes,and imports reduce it.

Accepted Answer

The statement correctly describes the full Keynesian model, where changes in investment, government spending, exports, saving, taxes, and imports all impact an economy's income.

Question 6

The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.

Accepted Answer

The recessionary gap is actually the difference between the potential level of output and the actual level of output in an economy when it is producing below its full-employment level. It is measured as the amount of output lost due to insufficient demand. The correct term to describe the spending reduction necessary to bring an overheated economy back to full employment is the inflationary gap.

Question 7

How did classical economists think that the self-correcting mechanism worked to get the economy out of a recession?

Accepted Answer

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Question 8

Changes in spending modify income by an amount equal to the change in spending.

Accepted Answer

Changes in spending modify income by a multiplier effect; the total change in income is typically larger than the initial change in spending due to the circulation of money through the economy.

Question 9

Equal changes in government spending and taxation lead to an equal change in income.

Accepted Answer

This is known as the balanced budget multiplier, where the increase in government spending is equal to the increase in taxation, resulting in a proportional increase in overall income.

Question 10

The aggregate spending exceeding the spending necessary to result in full employment is the inflationary gap.

Accepted Answer

The statement is true. An inflationary gap occurs when the economy is beyond full employment and aggregate spending is excessive. This excess demand leads to an increase in prices and inflation.

Question 11

Equilibrium income is reached when injections equal withdrawals.

Accepted Answer

This is a basic principle of macroeconomics known as the income-expenditure equilibrium or the Keynesian cross. In a closed economy, injections (such as investment, government spending, and exports) add to total spending while withdrawals (such as savings, taxes, and imports) subtract from it. At equilibrium, total spending equals total output and income, and there is no incentive for firms to change production levels.

Question 12

The balanced budget multiplier changes according to the values of marginal propensity to consume and marginal propensity to save.

Accepted Answer

The answer of The balanced budget multiplier changes according to...

Question 13

The recessionary gap is the increase in aggregate spending needed to bring a depressed economy back to full employment.

Accepted Answer

The recessionary gap is the difference between actual output and potential output in an economy. It represents the amount of aggregate spending needed to bring an economy back to full employment. Therefore, the statement is true.

Question 14

The balanced budget multiplier means that government spending,when financed by taxes,cannot affect the economy.

Accepted Answer

The balanced budget multiplier suggests that government spending, when financed by taxes, can have a neutral effect on the economy in the short run. This is because any increase in spending is offset by the decrease in private spending due to the tax increase. However, in the long run, there can be a positive impact on the economy due to increased investment and productivity.

Question 15

Tax decreases do not inject money into the economy.

Accepted Answer

Tax decreases, also known as tax cuts, put more money into the pockets of individuals and businesses, which can then be spent or invested in the economy. This can stimulate economic growth and increase demand for goods and services.

Question 16

One reason so many people focus on the trade deficit is that if we import more,equilibrium income will rise,ceteris paribus.

Accepted Answer

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Question 17

Keynes believed that more government spending was necessary to solve the unemployment problem created by the Great Depression,since it was unlikely that investment or exports would increase.

Accepted Answer

Keynes believed in the concept of government intervention, particularly in the form of increased government spending, to boost aggregate demand and combat unemployment during economic downturns. He argued that private investment and exports were unlikely to be sufficient to restore full employment during a period of economic contraction.

Question 18

Analyze consumption by comparing the average propensity to consume (APC)with the marginal propensity to consume (MPC),using numerical examples to support your response.Is either APC or MPC consistent with Keynes's psychological law?

Accepted Answer

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Question 19

Exports are injections and imports are withdrawals from the domestic spending cycle.

Accepted Answer

This statement is true. Exports add to the domestic spending cycle and are considered injections, while imports subtract from the domestic spending cycle and are considered withdrawals.

Question 20

The recessionary gap is equal to the GDP gap divided by the multiplier.

Accepted Answer

The formula for the recessionary gap is: GDP gap = potential GDP - actual GDP. To find the size of the recessionary gap, we need to divide this by the multiplier, which is the ratio of the change in real GDP to the change in government spending or investment. Therefore, the correct statement is that the recessionary gap is equal to the GDP gap divided by the multiplier.

Quiz 8: Aggregate Expenditures