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The next three questions are based on the following exhibit showing data for an economy operating under the assumptions of the simple Keynesian model. That is, there is no depreciation, no government, and no foreign sector. Figure 1 Real GDP = DI | Consumption Investment S 100 220 100 200 300 100 300 380 100 100 460 100 500 540 100 600 620 100 700 700 100 800 180 100 900 860 100 1000 940 100 1 100 1020 100 200 100 100 1300 180 100 1. In Figure 1, the equilibrium level of real GDP is: a. $ 100 b. $ 700 C. $ 800 d. $1000 e. $1200 2. The marginal propensity to consume (MPC) in the economy represented in Figure 1 is: a. 0 b. 0.2 C. 0.8 d. 0.9 e. 80 3. Assuming that real GDP would equal $1300 if the economy was fully employing its labor force, which of the following is true about the relationship between savings and investment at full employment? a. Savings exceeds investment spending by $20 b. Investment spending exceeds savings by $80 c. Savings exceeds investment spending by $80 d. Investment spending equals savings10. If the post-World War 1] baby boomers who are still in the labor force begin to save more in anticipation of retirement, what will happen to consumption and GDP according to a Keynesian? a. A downward shift of the consumption function and a drop in GDP b. An upward shift of the consumption function and an increase in GDP c. A movement to the right along the consumption function and an increase in GDP d. A movement to the right along the investment mction and a decrease in GDP Which of the following would be lg\": likely to cause an increase (rightward shift) in the aggregate supply curve? a A reduction in the corporate income tax rate b. A reduction in the price of oil c. An increase in nominal wage rates paid to workers d. An increase in the nation's physical or human capital resources A decrease in the wealth of consumers resulting, for example, -om a stock market crash initially causes a. an upward movement along the consumption function b. a downward movement along the consumption function c. an upward shift of the consumption mction d. a downward shift of the consumption function An increase in the marginal propensity to consume will a. increase the value of the multiplier b. decrease the value of the multiplier c. have no effect on the multiplier d. affect the multiplier, if at all, in ways which cannot be determined Keynes criticized classical economists for a. believing that wages and prices are exible and adjust quickly to clear markets b. believing that dollars saved by households necessarily went into business investments c. underestimating the potentially positive role of government in the economy d. believing that unemployment could be \"cured" by a decrease in wages e. all of the above Which of the following is not true about classical economists? a. They advocated more savings to promote economic growth b. They believed the economy would naturally tend toward ll] employment c. They believed prices and wages slowly react to market changes d. They discouraged government intervention in markets Keynes emphasized which of the following as a major factor in determining the level of investment spending? a Immediate past sales of product b. Current protability c. Average prot over the past ve years d. Business condence in the future state of the economy Figure 2 Aggregate Expenditures in m Expenditures (billions of dollars per year) 1350 1300 1250 1200 1150 1150 1200 1250 1300 1350 Real GDP (billions of dollars per year) Figure 2 shows planned aggregate expenditures in m an economy with both a government and foreign sector in which the other assumptions of the simple Keynesian Model apply. Use the graph to answer the next two questions. . If planned aggregate expenditures in Ware AEl, equilibrium GDP will be $ billion per year. a. $1150 13. $1250 c. $1300 d. $1200 . Which of the following would result in the economy of mm moving 'om point B to point A? I. An autonomous increase in investment spending of $50 billion 1]. An autonomous increase in exports of $50 billion 111. An autonomous decrease in consumption of $50 billion a. I. only 13. I. and I]. c. 1]]. only d. 1., IL, and HI
