1. If the economy is in equilibrium and suddenly the level of planned investment increases by $2 billion, national income will increase by

a. $2 billion and stabilize at that level
b. less than $2 billion because of MPS
c. more than $2 billion because of MPC
d. less than $2 billion because of MPC

2. In the Keynesian model, if planned investment exceeds planned saving at full-employment output,

a. unemployment is likely to develop
b. government spending may be needed to balance the economy
c. inflation is likely to occur
d. none of the above

3. The classical economic doctrine held that the normal equilibrium position of the economy was one of

a.rising interest rates
b.some unemployment
c. rising prices
d. full employment

4. In the Keynesian income-expenditure graph, total savings at each level of national income is indicated by
a. the vertical distance between the consumption function and the 45-degree line
b. the slope of the consumption function
c. the horizontal distance between the consumption function and the 45-degree line
d. the slope of the saving function

5. The new classical school holds that rational expectations tends to defeat the goals of monetary policy.
True
False