If the Fed desires to increase checkable deposits, it may lower the reserve requ

Question

If the Fed desires to increase checkable deposits, it may lower the reserve requirement.
    a. true
    b. false

Q38. In the simple Keynesian model, if output exceeds aggregate expenditures,
    a. there will be no response from businesses
    b. inventories will decrease and businesses will increase output
    c. inventories will increase and businesses will increase output
    d. inventories will increase and businesses will decrease output

Q39. In the Keynesian income-expenditure graph, total savings at each level of national income is indicated by
    a. the vertical distance between the consumption function and the 45-degree line
    b. the slope of the consumption function
    c. the horizontal distance between the consumption function and the 45-degree line
    d. the slope of the saving function

Q40. According to the Keynesian analysis, as income increases, the marginal propensity to consume will rise.
    a. true
    b. false

Q41. Keynes recommended the use of government deficit spending to overcome widespread unemployment.
    a. true
    b. false

Q42. Say's Law implies that
    a. production generates income, which is all spent to purchase what was produced
    b. demand creates its own supply
    c. markets do not clear
    d. demand determines real output

Q43. "A given change in business investment will cause a larger change in equilibrium output." This statement describes an important Keynesian concept called the
    a. multiplier effect
    b. marginal propensity to consume
    c. marginal propensity to invest
    d. consumption function

Q44. In the classical model, a self-regulating market would
    a. eliminate shortages or surpluses through price changes
    b. eliminate shortages but not surpluses
    c. render Say's Law invalid
    d. occur only in a labor market

Q45. The marginal propensity to consume is
    a. the fraction of an increase in income that would be spent on consumer goods
    b. the additional desire people have for consumer goods
    c. the fraction of a person's total income normally spent for consumer goods
    d. the change in consumption resulting from a $1 change in the price level

Q46. The aggregate demand curve is the sum of individual demand curves in the economy.
    a. true
    b. false

Q47. Assume a marginal propensity to consume of three-fourths. If private planned investment decreases by $10 billion and government spending increases by $13 billion, the national income will increase by
    a. $4 billion
    b. $12 billion
    c. $3 billion
    d. $2.25 billion

Q48. According to the Keynesian analysis, equilibrium will occur where planned injections equal planned leakages.
    a. true
    b. false

Q49. According to classical economists, the aggregate supply curve is
    a. vertical in both the long run and the short run
    b. vertical only in the long run
    c. vertical only in the short run
    d. horizontal in the short run

Q50. The monetarist school is primarily concerned with unemployment and recessions.
    a. true
    b. false

Explanation / Answer

(1) TRUE

Higher Reserve requirement will compel commercial banks to retain more of the deposits as reserves & lend out less as credit.

(Q 38) (d)

Output > Expenditures means that there is excess output with the firms than what the consumers can aggregatively demand. So there will be unintended inventory accumulation & then the firms will lower output.

(Q 39) (a)

Saving = income - consumption. So, savings are represented by vertical distance between the two lines.

(Q 40) TRUE

MPC is an increasing function of income.

(Q 41) TRUE
Keynes proposed deficit funding to stimulate economy & employment.

(Q 42) (b)

Say's law states that production creates demand.

(Q 43) (a)

Multiplier effect states that a change in input will increase the output more than proportionately through cascading effects.

(Q 44) (a)

In classical theory, wages or prices are fully flexible, so any disequilibrium is brought back to a balanced level by changes in price/wage.

(Q 45) (a)

(Q 46) TRUE

NOTE: Out of 13 questions, the first 10 have been answered.

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