1. Assume the mpc is 0.75. If autonomous consumption increases by $0.8 trillion- ceterisparibus- the overall change in real GDP would be equal to:

a. a decrease of $2.4 trillion

b. an increase of $3.2 trillion.

c. an increase of $0.6 trillion.

d. an increase of $2.4 trillion.

e. a decrease of $0.6 trillion.

2.The Pigou-Wealth effect indicates that

a. a lower price level will increase the real value of financial assets and therefore increase spending.

b. an increase in the overall price level would shift the AD curve leftward

c. a higher price level will increase the real value of financial assets and therefore increase spending

d. a decrease in the overall price level would shift the AD curve leftward

The Keynes-Interest Rate effect suggests that

a. the above scenario- lower prices, lower interest rates- would result in a movement up the AD curve.

b. a lower price level might lead to a reduction in the demand for money resulting in a fall in the rate of interest, the result will be a movement down the AD curve.

c. higher prices and, therefore higher interest rates would cause the AD curve to shift.

d. lower prices and, therefore lower interest rates would cause the AD curve to shift left.