SSE 104 FINAL EXAM Version A Name: PART I: MULTIPLE CHOICE QUESTIONS (240 points
ID: 1126846 • Letter: S
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SSE 104 FINAL EXAM Version A Name: PART I: MULTIPLE CHOICE QUESTIONS (240 points) There is a total of 30 multiple choice questions. Each is worth 8 points. Choose the BEST answer. Fill in the correct "bubble" on your INOTE: Date: scrantron form) : I will grade based on ONLY your answers on the scantron form. 1. TRUE/FALSE. Keynes believed government intervention was required to boost spendin economy out of a recessionary gap A) TRUE B)FALSE 2. TRUEFALSE. Unlike the Classical economists, Keynes felt that if the economy was at less than full employment, it would automatically adjust to full employment A) TRUE B)FALSE 3. If consumers spend 90 cents out of every extra dollar received, the: A) MPS is 0.10. B) MPC is 0.90. C) Multiplier is 10. D) All of the above Which of the following is an example of the multiplier at work as a result of an increase in consumption expenditures? A) Consumers compete with the government by increasing their expenditures, causing businesses to increase their investments in order to satisfy the increased demand. B) Consumption expenditures increase inflation, which reduces real incomes; consumer expenditures and investment decline, which reduces aggregate spending. C) Households and businesses receive income from consumption expenditures; they spend a portion of this new income; these expenditures in turn generate income for other businesses and households, which in turn spend a portion of the new income, and so on. D) Consumption expenditures stimulate investment in new plant and equipment in order to produce goods and services for the government, which provides jobs and increases incomes. 4. 5. Given C- 200+0.75Y, the multiplier (without considering imports) is: A)0.25. B) 0.75. C) 4. D) 1.33. 6. If the marginal propensity to save is 0.10, the marginal propensity to import is 0.10 and the initial decline in investment is $200 billion, then how much will aggregate demand eventually decrease? A)S10 billion per year. B) S100 billion per year. C) SI trillion per year. D) $10 trillion per year. With an MPC of 0.85 and an MPI of 0.10 an increase of $1 billion in autonomous consumption would cause: A) An initial increase of $750 million in spending B) $1 billion in multiplier effects. C) A total of $3 billion in changed autonomous consumption plus multiplier effects D) A total change in spending of $4 billion. 7. Suppose an economy is at full-employment equilibrium at a GDP of $25 billion and investment declines by $4 billion. According to Keynes, this economy will: A) Quickly self adjust back to full employment. B) Reach a new equilibrium at $21 billion. C) Eventually reach a new equilibrium at an output level significantly less than $21 billion. D) Reach a new equilibrium at a level of output between $21 billion and $25 billion. 8.Explanation / Answer
Ans 1 a) True Keynes advocated higher govt spending during recession as it will have a positive effect on aggregate demand and improve the economy to overcome from recession .
Ans 2) False. Keynes did not believe in automatic adjustment of economy to full employment. It was classical economist who advocated it. According to Keynes employment level can be increased through increase in national income and aggregate demand.
Ans 3- d) All of the above .
If 90 cents is spent from 1 dollar ,
MPC - 0.90 = change in consumption /change in income
MPS = 1-MPC = 0.10
Multiplier= 1/1-MPC = 1/1-0.90 = 1/0.10 = 10.
Ans 4- D) Consumption expenditure stimulate investment in new plants and equipment in order to produce goods and services for the government which provides jobs and increase income.
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