1. If the Fed desires to increase checkable deposits, it may lower the reserve requirement.

a. true

b. false

2. In the simple Keynesian model, if output exceeds aggregate expenditures,

a. there will be no response from businesses

b. inventories will decrease and businesses will increase output

c. inventories will increase and businesses will increase output

d. inventories will increase and businesses will decrease output

3. 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

4. According to the Keynesian analysis, as income increases, the marginal propensity to consume will rise.

a. true

b. false

5. Keynes recommended the use of government deficit spending to overcome widespread unemployment.

a. true

b. false

6. Say's Law implies that

a. production generates income, which is all spent to purchase what was produced

b. demand creates its own supply

c. markets do not clear

d. demand determines real output

7. "A given change in business investment will cause a larger change in equilibrium output." This statement describes an important Keynesian concept called the

a. multiplier effect

b. marginal propensity to consume

c. marginal propensity to invest

d. consumption function

8. In the classical model, a self-regulating market would

a. eliminate shortages or surpluses through price changes

b. eliminate shortages but not surpluses

c. render Say's Law invalid

d. occur only in a labor market

9. The marginal propensity to consume is

a. the fraction of an increase in income that would be spent on consumer goods

b. the additional desire people have for consumer goods

c. the fraction of a person's total income normally spent for consumer goods

d. the change in consumption resulting from a $1 change in the price level

10. The aggregate demand curve is the sum of individual demand curves in the economy.

a. true

b. false

11. Assume a marginal propensity to consume of three-fourths. If private planned investment decreases by $10 billion and government spending increases by $13 billion, the national income will increase by

a. $4 billion

b. $12 billion

c. $3 billion

d. $2.25 billion

12. According to the Keynesian analysis, equilibrium will occur where planned injections equal planned leakages.

a. true

b. false

13. According to classical economists, the aggregate supply curve is

a. vertical in both the long run and the short run

b. vertical only in the long run

c. vertical only in the short run

d. horizontal in the short run

14. The monetarist school is primarily concerned with unemployment and recessions.

a. true

b. false