Question 1

John Maynard Keynes expressed his ideas about the macroeconomy and attacked classical economics in his book, The

Accepted Answer

John Maynard Keynes expressed his ideas about the macroeconomy and critiqued classical economics in his seminal work, "The General Theory of Employment, Interest, and Money," published in 1936.

Question 2

John Maynard Keynes developed the ideas underlying the aggregate expenditures model

Accepted Answer

Keynes developed the aggregate expenditures model as a critique of classical economics, particularly during the Great Depression, to address issues that classical economics could not explain, such as prolonged unemployment.

Question 3

The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to

Accepted Answer

The stimulus package was intended to increase aggregate demand by pushing the aggregate expenditures schedule upward, thereby stimulating economic activity and reducing unemployment during the Great Recession.

Question 4

In the aggregate expenditures model of a private closed economy, we analyze a consumption schedule and an investment schedule, both of which indicate that as income increases then consumption and investment will increase.

Accepted Answer

The answer of In the aggregate expenditures model of a...

Question 5

In an open mixed economy, the inflationary expenditure gap may be described as the

Accepted Answer

The inflationary expenditure gap occurs when aggregate expenditures (Ca + Ig + Xn + G) exceed the full-employment GDP, leading to demand-pull inflation.

Question 6

If consumers respond to a tax-cut by saving a large portion of the extra disposable income (or using it to reduce their debts), then the tax-cut policy would

Accepted Answer

If consumers save a large portion of the tax-cut or use it to pay off debts, the increase in disposable income does not translate into a significant increase in consumption spending, thus having little effect on the aggregate expenditures curve.

Question 7

In the Great Recession of 2007-2009, the aggregate expenditures schedule in the U.S.economy dropped, mostly due to a fall in

Accepted Answer

During the Great Recession, there was a significant decline in investment expenditures as businesses cut back on spending due to uncertainty and tighter credit conditions.

Question 8

If the economy has a recessionary expenditure gap of $15 billion and the MPS is 0.3, then the equilibrium level of GDP is

Accepted Answer

The expenditure multiplier is 1/MPS, which is 1/0.3 = 3.33. The recessionary gap of $15 billion multiplied by the multiplier (3.33) results in a $50 billion shortfall in GDP below the full-employment level.

Question 9

The major basic premise of the aggregate expenditures model is that if the total demand for output increases, then firms will raise their prices.

Accepted Answer

The aggregate expenditures model assumes that if total demand increases, firms will increase output rather than prices, as prices are assumed to be fixed in the short run.

Question 10

In 2008 during the Great Recession, the Federal government provided tax rebate checks to taxpayers in the hope that

Accepted Answer

The tax rebate checks were intended to increase consumer spending (C), thus shifting the consumption function upward.

Question 11

Say's law in classical economics suggests that, over a period of time,

Accepted Answer

Say's law posits that supply creates its own demand, implying that aggregate spending will naturally equal total output and income over time.

Question 12

One of the most important views expressed by classical macroeconomists was that

Accepted Answer

Classical macroeconomists believed in Say's Law, which states that supply creates its own demand. This means that the production of goods and services will generate an amount of income equal to the value of the goods and services produced, ensuring that all output will be purchased.

Question 13

One basic assumption of the aggregate expenditures model is that the price level in the economy is fixed.

Accepted Answer

The aggregate expenditures model assumes that the price level is constant to focus on the relationship between total spending and real GDP.

Question 14

A rightward shift of the investment demand curve translates into an upward shift of the investment schedule in the aggregate expenditures model.

Accepted Answer

A rightward shift in the investment demand curve indicates an increase in investment at each interest rate, which translates to an upward shift in the investment schedule in the aggregate expenditures model, reflecting higher planned investment spending.

Question 15

A downward-sloping investment demand curve and a horizontal investment schedule indicate that investments are inversely related to interest rates but are not affected by the level of income.

Accepted Answer

A downward-sloping investment demand curve shows that investment decreases as interest rates increase, indicating an inverse relationship. A horizontal investment schedule suggests that investment does not change with varying levels of income.

Question 16

From the perspective of classical macroeconomic theory, an excess of aggregate spending would

Accepted Answer

In classical macroeconomic theory, an excess of aggregate spending leads to higher prices, wages, and interest rates, which in turn reduces aggregate spending, bringing it back to the full-employment level of output.

Question 17

Classical economists held the view that in the economy,

Accepted Answer

Classical economists believed that unemployment is temporary and self-correcting due to flexible wages and prices, which allow the economy to return to full employment.

Question 18

The major economic issue during the Great Depression of the 1930s that concerned John Maynard Keynes was

Accepted Answer

John Maynard Keynes was primarily concerned with unemployment during the Great Depression, advocating for increased government spending to boost demand and create jobs.

Question 19

If the expected rates of return from investment decrease in an economy, there would most likely be a downward shift in the investment schedule for that economy.

Accepted Answer

A decrease in expected rates of return makes investments less attractive, leading to a reduction in planned investment at each level of income, causing a downward shift in the investment schedule.

Question 20

From the perspective of classical macroeconomic theory, if aggregate spending was temporarily less than output,

Accepted Answer

In classical macroeconomic theory, if aggregate spending is less than output, prices would decrease to stimulate demand, leading to an increase in aggregate spending and a return to equilibrium.

Quiz 31: The Aggregate Expenditures Model