(21) The two ways to view macroeconomic equilibrium in the Keynesian model are C
ID: 1136763 • Letter: #
Question
(21) The two ways to view macroeconomic equilibrium in the Keynesian model are C = S and I = Y. C = Y and S = I. C = I and S = Y. C = T and G = S.
(22) According to the table, at what level of income is the economy in equilibrium?
100 150 200 250
(23) Which of the following formulae is the expression of the multiplier? a + bY 1/(1-b) 1/(1-b) * (a + I) 1/b
(24) Keynes believed that expansionary fiscal policy was the best response to a period of high unemployment. true false
(25) What would cause the aggregate expenditures line in the graph to shift upward?
An increase in taxes A government program that increased consumer savings A decrease in government spending An increase in government spending
(26) When NX > 0, it means that we are buying more from foreigners than foreigners are buying from us. true false
(27) In Keynes’s model, the economy reaches equilibrium at the point where income equals spending. true false
(28) According to the aggregate demand/aggregate supply model, all of the following are effects of increased prices except decreased investment. decreased consumer spending. increased interest rates. increased net exports.
(29) If the MPC is 0.6 and the government spends an additional $1 billion, what is the net effect on output? Output increases by $2.5 billion. Output increases by $600 million. Output increases by $1.6 billion. Output decreases by $400 million.
(30) If the marginal propensity to consume is .9, the multiplier is _______. .1 .8 .9 10
Explanation / Answer
21) C = Y and S = I. In absence of investment and government spending, C = Y is an equilibrium while for closed economy S = I is an equilibrium
22) 250. When Y = 250, C = 100 + 0.6*250 = 250.
23) Multiplier = 1/1-mpc. So it is given by 1/(1-b)
24) True because only government, according to Keynesians, can help the economy to combat recession
25) An increase in government spending
26) False
27) True
28) increased net exports
29) Output increases by $2.5 billion.
30) 10
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