.According to classical theory:
A.Keynes had “neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand.”
B.Macro equilibrium might start out badly and get worse in the absence of government intervention.
C.Flexible wages and prices allow a laissez-faire economy to adjust to shifts in aggregate demand.
D.Business cycles are not relevant and do not occur.
2.Unlike the Classical economists, Keynes asserted that:
A.The economy was inherently unstable.
B.Laissez faire would lead to macro equilibrium.
C.Prices and wages were flexible.
D.Markets would naturally self-adjust.
3.As output rises, the profit effect results
A.Lower opportunity costs.
B.Tight supplies of factors of production.
C.The law of demand.
D.Constant costs which do not rise when prices rise.
4.The real-balances effect says
that an increase in the price level:
A.Increases the price of U.S. produced goods, causing Americans to buy more imported goods.
B.Increases the price of U.S. produced goods, causing foreign consumers to buy fewer U.S. goods.
C.Increases the need to borrow, which drives up interest rates and reduces loan-financed purchases
D.Reduces the value of savings, which reduces the purchase of goods and services.
5.According to supply-side theory, inadequate supply can be remedied by:
A.Reduced government regulation.
B.Reduced government spending.
C.Increased government taxes.
D.Increased government spending.
6.When the AS curve is vertical, increases in AD will:
A.Increase the average price level
but have no impact on unemployment.
B.Increase the average price level and decrease unemployment.
C.Increase both the average price level and unemployment.
D.Have no impact on either the average price level or unemployment.
7.The marginal propensity to consume can be found by dividing:
A.Total consumption by total saving.
B.Total consumption by the number of people consuming.
C.The change in total consumption by the change in disposable income.
D.Disposable income by total consumption.
8.If the MPC is 0.75 and the APC is 0.8, then the MPS equals:
9.The consumption function implies that:
A.Disposable income inversely influences consumption.
B.Consumption directly influences disposable income.
C.Autonomous consumption changes when people have low incomes.
D.Consumption increases as disposable income increases.
10.Suppose the consumption function is C
= $300 + 0.9YD
. If disposable income is $400, consumption is:
11.Which of the following causes a movement along the investment demand curve?
A.A change in expenditures.
B.A change in technology.
C.A change in the rate of interest.
D.The current level of income.
12.A recessionary gap implies that:
A.Aggregate demand is less than aggregate supply at the full-employment price level
B.The unemployment rate is falling.
C.Aggregate demand exceeds aggregate supply at the full-employment price level.
D.Inventories are being depleted faster than producers desire.
13.What are the differences between classical theory and what Keynes believed?
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14.What is the marginal propensity to consume in the table above?