Question 1

If the marginal propensity to consume in the economy is 0.8 and the government increases its spending this year by €10 billion, what will be the additional increase in expenditure in the economy next year?

Accepted Answer

A)   €10 billion
B)   €8 billion
C)   €2 billion
D)   €0.8 billionE) B) and D)
F) B) and C) B

Question 2

Refer to figure 1 below. If the vertical distance labelled Z represents a deflationary gap then which of the following statements is true? Figure 1 2 represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M) 2 to C+I+G+(X-M) 1 in order to increase output and employment. B)  Y1 represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M) 2 to C+I+G+(X-M) 1 in order to increase output and employment. C)  Y2 represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 in order to increase output and employment. D)  Y1 represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 in order to increase output and employment." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   Y2 represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M) 2 to C+I+G+(X-M) 1 in order to increase output and employment.
B)   Y1 represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-M) 2 to C+I+G+(X-M) 1 in order to increase output and employment.
C)   Y2 represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 in order to increase output and employment.
D)   Y1 represents the full employment level of output and total expenditure must be increased from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 in order to increase output and employment.E) A) and D)
F) All of the above

Question 3

The IS-MP model differs from the IS-LM model in that it is assumed

Accepted Answer

A)   central banks target inflation and set interest rates to meet such a target.
B)   the money supply is endogenous.
C)   price and wage stickiness do not exist.
D)   governments instruct central banks on the level of the money supply and interest rates.E) B) and C)
F) A) and D)

Question 4

A key element of Keynesian analysis relates to:

Accepted Answer

A)   policies to reduce the difference between planned and actual spending and investment
B)   using taxation as a means to influence the interest rate in an economy.
C)   The similarities between short term fluctuations in macroeconomic variables and how they behave in the long run
D)   the distinction between planned spending and investment and actual spending and investmentE) A) and B)
F) C) and D)

Question 5

Which of the following will not weaken the value of the multiplier in an economy in response to a change in autonomous spending?

Accepted Answer

A)   A rise in net imports.
B)   A fall in the marginal propensity to consume.
C)   An increase in the proportion of tax taken of every euro earned
D)   An increase in the interest rateE) A) and C)
F) B) and C)

Question 6

John Maynard Keynes' General Theory was an attempt to explain how economies operate at equilibrium in the long run.

Accepted Answer

A) True 
 B)False

Question 7

IS stands for:

Accepted Answer

A)   Investment and Spending
B)   Imports and Spending.
C)   Interest and Saving
D)   Investment and Saving.E) None of the above
F) B) and C)

Question 8

Which of the following will generate a multiplier effect in the European economy?

Accepted Answer

A)   An increase in exports of luxury European cars to China.
B)   An increase in investment in the French wine industry.
C)   A reduction in consumer spending due to a sudden and substantial fall in European stock markets that reduces household wealth.
D)   All of the above.E) A) and D)
F) A) and C)

Question 9

Figure 4 1 and the level of national income is Y1. B)  The figure shows that an expansionary monetary policy will lead to an increase in national income and an increase in interest rates. C)  The figure shows that an expansionary fiscal policy will lead to an increase in national income and an increase in interest rates. D)  The figure shows the effect of an increase in autonomous expenditure." class="answers-bank-image d-inline" rel="preload" > ​ ​
Refer to figure 4 above. Figure 4 shows the IS-LM model. Which of the following statements about the figure is NOT true?

Accepted Answer

A)   The figure shows the economy would be in general equilibrium when the interest rate is i1 and the level of national income is Y1.
B)   The figure shows that an expansionary monetary policy will lead to an increase in national income and an increase in interest rates.
C)   The figure shows that an expansionary fiscal policy will lead to an increase in national income and an increase in interest rates.
D)   The figure shows the effect of an increase in autonomous expenditure.E) A) and C)
F) A) and B)

Question 10

Which of the following statements about the 45 degree line is true?

Accepted Answer

A)   The 45 degree line cuts the vertical axis at the level of autonomous expenditure in the economy.
B)   The 45 degree line connects all points where interest rates and national income are equal.
C)   The slope of the 45 degree line is determined by the marginal propensity to consume.
D)   A steeper 45 degree line indicates an inflationary gap.
E)   The 45 degree line connects all points where consumption spending would equal national income.F) A) and E)
G) All of the above

Question 11

If a central bank wants to reduce interest rates it will instruct its traders to:

Accepted Answer

A)   instruct all financial institutions to adjust rates accordingly.
B)   reduce liquidity in financial markets.
C)   buy bonds on the open market.
D)   carry out open market operations by buying shares on the stock exchange.E) A) and D)
F) B) and C)

Question 12

The slope of the IS curve is dependent upon:

Accepted Answer

A)   the marginal propensity to save
B)   the slope of the expenditure line from which it is derived.
C)   how often the central bank changes interest rates.
D)   the proportionate change in autonomous spending
E)   the responsiveness of consumption and investment to changes in interest rates.F) C) and E)
G) D) and E)

Question 13

Keynes believed that a key element of unemployment was a deficiency in the level of aggregate demand which governments could and should rectify.

Accepted Answer

A) True 
 B)False

Question 14

If the economy was in equilibrium where an inflationary gap existed then Keynes would argue that governments should cut public spending and increase taxation to reduce the expenditure line to reduce the gap.

Accepted Answer

A) True 
 B)False  True

Question 15

The slope of the expenditure line is dependent upon:

Accepted Answer

A)   the marginal propensity to consume.
B)   the marginal efficiency of capital.
C)   how far the government decides to increase autonomous expenditure.
D)   the slope of the 45 degree line.E) B) and D)
F) B) and C)

Question 16

Explain how the aggregate demand curve is derived from the IS-LM model.

Accepted Answer

The aggregate demand curve plots the rel...

Question 17

Figure 4 2 represents a level of national income lower than the full employment level, and that inflation has remained unchanged after the event that caused the IS curve to shift, what should the monetary authorities do if they wish to reduce unemployment? A)  Increase money supply. B)  Reduce money supply. C)  Advise the government to raise taxes. D)  Advise the government to reduce taxes." class="answers-bank-image d-inline" rel="preload" > ​ Refer to figure 4 above. Assuming that Y2 represents a level of national income lower than the full employment level, and that inflation has remained unchanged after the event that caused the IS curve to shift, what should the monetary authorities do if they wish to reduce unemployment?

Accepted Answer

A)   Increase money supply.
B)   Reduce money supply.
C)   Advise the government to raise taxes.
D)   Advise the government to reduce taxes.E) None of the above
F) C) and D)

Question 18

Refer to figure 2 below. Which of the following statements is NOT true? Figure 2 1 to C+I+G+(X-M) 2 and consequent increase in national income would result from a reduction in interest rates. B)  The upward shift in the expenditure line from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 and consequent increase in national income would result from an increase in exports. C)  The upward shift in the expenditure line from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 and consequent increase in national income would result from a reduction in saving. D)  The upward shift in the expenditure line from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 and consequent increase in national income would result from a reduction in government expenditure." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   The upward shift in the expenditure line from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 and consequent increase in national income would result from a reduction in interest rates.
B)   The upward shift in the expenditure line from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 and consequent increase in national income would result from an increase in exports.
C)   The upward shift in the expenditure line from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 and consequent increase in national income would result from a reduction in saving.
D)   The upward shift in the expenditure line from C+I+G+(X-M) 1 to C+I+G+(X-M) 2 and consequent increase in national income would result from a reduction in government expenditure.E) A) and C)
F) A) and B)

Question 19

What is the relationship between the production possibilities frontier and the deflationary gap?

Accepted Answer

When there is a deflationary gap the economy is not operating at full employment output. There must be spare capacity in the economy. Signs would be high unemployment, wasted land and underused productive capacity. This is equivalent to an economy operating inside its production possibilities frontier.

Question 20

What did Keynes mean by an inflationary and deflationary gap?

Accepted Answer

The inflationary gap is the difference b...

Exam 32: Keynesian Economics and the Is-Lm Analysis

If the marginal propensity to consume in the economy is 0.8 and the government increases its spending this year by €10 billion, what will be the additional increase in expenditure in the economy next year?

Correct Answer
verified
B

Refer to figure 1 below. If the vertical distance labelled Z represents a deflationary gap then which of the following statements is true? Figure 1

Correct Answer
verified

The IS-MP model differs from the IS-LM model in that it is assumed

Correct Answer
verified

A key element of Keynesian analysis relates to:

Correct Answer
verified

Which of the following will not weaken the value of the multiplier in an economy in response to a change in autonomous spending?

Correct Answer
verified

John Maynard Keynes' General Theory was an attempt to explain how economies operate at equilibrium in the long run.

Correct Answer
verified

IS stands for:

Correct Answer
verified

Which of the following will generate a multiplier effect in the European economy?

Correct Answer
verified

Figure 4 Refer to figure 4 above. Figure 4 shows the IS-LM model. Which of the following statements about the figure is NOT true?

Correct Answer
verified

Which of the following statements about the 45 degree line is true?

Correct Answer
verified

If a central bank wants to reduce interest rates it will instruct its traders to:

Correct Answer
verified

The slope of the IS curve is dependent upon:

Correct Answer
verified

Keynes believed that a key element of unemployment was a deficiency in the level of aggregate demand which governments could and should rectify.

Correct Answer
verified

If the economy was in equilibrium where an inflationary gap existed then Keynes would argue that governments should cut public spending and increase taxation to reduce the expenditure line to reduce the gap.

Correct Answer
verified
True

The slope of the expenditure line is dependent upon:

Correct Answer
verified

Explain how the aggregate demand curve is derived from the IS-LM model.

Correct Answer
verified
The aggregate demand curve plots the rel...
View Answer

Figure 4 Refer to figure 4 above. Assuming that Y₂ represents a level of national income lower than the full employment level, and that inflation has remained unchanged after the event that caused the IS curve to shift, what should the monetary authorities do if they wish to reduce unemployment?

Correct Answer
verified

Refer to figure 2 below. Which of the following statements is NOT true? Figure 2

Correct Answer
verified

What is the relationship between the production possibilities frontier and the deflationary gap?

What did Keynes mean by an inflationary and deflationary gap?

Correct Answer
verified
The inflationary gap is the difference b...
View Answer

Exam 32: Keynesian Economics and the Is-Lm Analysis

If the marginal propensity to consume in the economy is 0.8 and the government increases its spending this year by €10 billion, what will be the additional increase in expenditure in the economy next year?

Correct AnswerverifiedB

Refer to figure 1 below. If the vertical distance labelled Z represents a deflationary gap then which of the following statements is true? Figure 1

Correct AnswerverifiedShow Answer

The IS-MP model differs from the IS-LM model in that it is assumed

Correct AnswerverifiedShow Answer

A key element of Keynesian analysis relates to:

Correct AnswerverifiedShow Answer

Which of the following will not weaken the value of the multiplier in an economy in response to a change in autonomous spending?

Correct AnswerverifiedShow Answer

John Maynard Keynes' General Theory was an attempt to explain how economies operate at equilibrium in the long run.

Correct AnswerverifiedShow Answer

IS stands for:

Correct AnswerverifiedShow Answer

Which of the following will generate a multiplier effect in the European economy?

Correct AnswerverifiedShow Answer

Figure 4 ​ ​ Refer to figure 4 above. Figure 4 shows the IS-LM model. Which of the following statements about the figure is NOT true?

Correct AnswerverifiedShow Answer

Which of the following statements about the 45 degree line is true?

Correct AnswerverifiedShow Answer

If a central bank wants to reduce interest rates it will instruct its traders to:

Correct AnswerverifiedShow Answer

The slope of the IS curve is dependent upon:

Correct AnswerverifiedShow Answer

Keynes believed that a key element of unemployment was a deficiency in the level of aggregate demand which governments could and should rectify.

Correct AnswerverifiedShow Answer

If the economy was in equilibrium where an inflationary gap existed then Keynes would argue that governments should cut public spending and increase taxation to reduce the expenditure line to reduce the gap.

Correct AnswerverifiedTrue

The slope of the expenditure line is dependent upon:

Correct AnswerverifiedShow Answer

Explain how the aggregate demand curve is derived from the IS-LM model.

Correct AnswerverifiedThe aggregate demand curve plots the rel...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Refer to figure 2 below. Which of the following statements is NOT true? Figure 2

Correct AnswerverifiedShow Answer

What is the relationship between the production possibilities frontier and the deflationary gap?

What did Keynes mean by an inflationary and deflationary gap?

Correct AnswerverifiedThe inflationary gap is the difference b...View AnswerShow Answer

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 4 Refer to figure 4 above. Figure 4 shows the IS-LM model. Which of the following statements about the figure is NOT true?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
True

Correct Answer
verified

Correct Answer
verified
The aggregate demand curve plots the rel...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The inflationary gap is the difference b...
View Answer