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Exam 10: Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

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Question 31

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Keynes believed that

A) Say's law would hold in a laissez-faire economy.
B) the economy would always be near or on its production possibilities frontier.
C) wages and prices are often inflexible in the downward direction.
D) the equilibrium level of output will always be at the full-employment level of output.

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Question 32

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Exhibit 10-3 -Refer to Exhibit 10-3. The marginal propensity to consume (MPC) is

A) 0.80.
B) 0.75.
C) 0.20.
D) 0.25.
E) 0.90.

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Question 33

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A rise in MPC makes the total expenditures (TE) curve __________ and __________ the multiplier.

The economy is in equilibrium, TP = TE, and Real GDP is $2,000 billion. The MPC is 0.75, the multiplier is operative, and idle resources exist at each expenditure round. Autonomous investment spending falls by $10 billion. As a result, the TE curve shifts __________, inventory levels unexpectedly __________, business firms __________ the quantity of goods and services they produce, and Real GDP __________ by __________.

If households, businesses, and government buy more than businesses have produced,

Explain the process by which an initial change in autonomous spending can lead to an even greater change in total spending.

The marginal propensity to consume (MPC) refers to the proportion of disposable income that is spent on consumption.

Exhibit 10-2 -Refer to Exhibit 10-2. At M,

What type of relationship exists between the marginal propensity to consume (MPC) and the multiplier? Explain why this relationship exists, giving a hypothetical numerical example to help support your answer.

Exhibit 10-8 -Refer to Exhibit 10-8. Autonomous consumption (C_o) is equal to

Describe Keynes' criticism of Say's law in a money economy.

Exhibit 10-8 -Refer to Exhibit 10-8. The marginal propensity to consume (MPC) is

The economy is in equilibrium, TP = TE, and Real GDP is $4,000 billion. The MPC is 0.60, the multiplier is operative, and idle resources exist at each expenditure round. Autonomous investment spending rises by $13 billion. As a result, the __________ curve shifts __________, inventory levels unexpectedly __________, business firms __________ the quantity of goods and services they produce, and Real GDP __________ by __________.

Here is a consumption function: C = C₀ + MPC(Y_d) . If MPC is 0.80, then we know that

If an economy consumes 68 percent of any increase in disposable income, then an increase in autonomous investment of $1 billion would result in an increase in total spending of as much as

Exhibit 10-5 -Refer to Exhibit 10-5 When TE is $700 billion, what state is the economy in?

When total expenditure (TE) exceeds total production (TP), inventory levels rise unexpectedly, which sends a signal to firms that they have overproduced, so they cut back on production.

When the MPC = 0.6, the multiplier is

The marginal propensity to save (MPS) can be found using the equation: (1 - MPC).

Exhibit 10-9 -Refer to Exhibit 10-9. What is the value of the marginal propensity to consume (MPC) that would correctly fill in blank (C) and the marginal propensity to save (MPS) that would correctly fill in blank (D) ?