3. Answer the following questions about Keynesian Economics and Fiscal Policy A.

Question

3. Answer the following questions about Keynesian Economics and Fiscal Policy

A. The event that changed many economistsí beliefs about economic equilibrium was:

a. the implementation of fiscal policy.

b. World War II.

c. the Great Depression.

d. the oil supply shock of the 1970s.

e. the huge government deficits of the 1980s.

B. According to classical economists, in times of unemployment the most appropriate counter cyclical, or stabilization, policy is for the government to:

a. increase the minimum wage.

b. impose wage and price controls.

c. stimulate aggregate demand.

d. cut taxes.

e. do nothing.

C. According to Keynesian theory, what is the most important determinant of households' spending on goods and services?

a. The price level

b. The interest rate

c. Autonomous consumption

d. Disposable income

e. Government spending

D. The consumption function shows the relationship between consumer expenditures and:

a. the interest rate.

b. the tax rate.

c. savings.

d. disposable income.

e. the price level.

E. Which of the following will not shift the consumption function?

a. Change in interest rates

b. Diminished expectations about future income

c. Change in disposable income

d. Change in taxes

e. Both C and D

F. Given the consumption function C = 5000 + 0.6YD, an increase in disposable income of $500 will result in an increase in consumption of YD=Y-T:

a. $300

b. $500

c. $600

d. $5,300

e. None of the above

Explanation / Answer

A. the Great Depression.

B.  do nothing.

C. Disposable income

D. disposable income.

E. Change in disposable income

F. $3000

Explanation: Increase in consumption = MPC * increase in income = 0.6 * 500 = $300

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.