1. For an economy in equilibrium, the Keynesian model suggests thatthe plot of a

Question

1. For an economy in equilibrium, the Keynesian model suggests thatthe plot of aggregate expenditure
against RGDP:
a. is a vertical line.
b. has slope lesser than 1.
c. has slope equal to 1.
d. is a horizontal line.

2. In the balanced-budget multiplier equation, the componentMPC/(1-MPC):
a. is equal to 1.
b. reflects the effect of taxes on aggregate expenditure.
c. reflects the effect of government purchases on aggregateexpenditure.
d. is always equal to zero.

3. In the balanced-budget multiplier equation, the component1/(1-MPC):
a. is equal to 1.
b. reflects the effect of taxes on aggregate expenditure.
c. reflects the effect of government purchases on aggregateexpenditure.
d. is always equal to zero.

4. If autonomous expenditures increased by $10 billion, what is thechange in aggregate demand at a given price level if the MPC toconsume is 0.8?
a. increase by $50 billion
b. increase by $100 billion
c. decrease by $100 billion
d. decrease by $10 billion
e. No change in aggregate demand

5. Along a vertical long-run aggregate supply curve, what effectwill a $20 billion increase in government
expenditures have on real output if the MPC is 0.8?
a. increase by $100 billion
b. increase by $20 billion
c. decrease by $100 billion
d. decrease by $40 billion
e. No effect

6. Which of the following is the primary determinant of aggregatedemand in the simplest Keynesian
expenditure model?
a. consumption spending
b. net exports
c. investments
d. government purchases

Explanation / Answer

1. For an economy in equilibrium, the Keynesian model suggeststhat the plot of aggregate expenditure
against RGDP:
a. is a vertical line.
b. has slope lesser than 1.
c. has slope equal to 1.
d. is ahorizontal line.

2. In the balanced-budget multiplier equation, the componentMPC/(1-MPC):
a. is equal to 1.
b. reflects theeffect of taxes on aggregate expenditure.
c. reflects the effect of government purchases on aggregateexpenditure.
d. is always equal to zero.

3. In the balanced-budget multiplier equation, the component1/(1-MPC):
a. is equal to 1.
b. reflects the effect of taxes on aggregateexpenditure.
c. reflects the effect of government purchases on aggregateexpenditure.
d. is always equal to zero.

4. If autonomous expenditures increased by $10 billion, what is thechange in aggregate demand at a given price level if the MPC toconsume is 0.8?
a. increase by $50 billion
b. increaseby $100 billion
c. decrease by $100 billion
d. decrease by $10 billion
e. No change in aggregate demand

5. Along a vertical long-run aggregate supply curve, what effectwill a $20 billion increase in government
expenditures have on real output if the MPC is 0.8?
a. increase by $100 billion
b. increaseby $20 billion
c. decrease by $100 billion
d. decrease by $40 billion
e. No effect

6. Which of the following is the primary determinant of aggregatedemand in the simplest Keynesian
expenditure model?
a. consumption spending
b. netexports
c. investments
d. government purchases

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