1. Which of the following is not a determinant of autonomous consumption?
Wealth
Technology
Tax policy
Consumer confidence

2. Suppose a consumption function is given as C = $150 + 0.75YD. The marginal propensity to save is:
150.
0.75.
0.25.
-0.75.

3. An increase in the income-dependent portion of the consumption function would correspond to a:
Shift of the consumption function upward.
Shift of the consumption function downward.
Movement along the consumption function to the right.
Movement along the consumption function to the left.

4. Consumption and investment spending account for approximately _______ percent of total output.
50
60
70
80

5. Which of the following will not cause an increase in U.S. gross exports?
An increase in foreign business investment
An increase in foreign wealth
An increase in foreign consumer income
A decrease in U.S. imports

Use this table for the next 2 questions:

Disposable income Total consumption
(billions of dollars per year)
$0 $50
200 210

6. What is the marginal propensity to consume in the table?
0.15
0.80
0.85
0.90

7. What is the rate of saving when income equals $300 billion in the Table?
Zero
$50 billion
$10 billion
-$290 billion

8. All of the following will shift the investment curve except:
Innovation.
Improvements in available technology.
Changes to expectations.
Changes to the interest rate.

9. Income transfers, such as unemployment insurance, welfare benefits, and food stamps:
Serve to help stabilize aggregate demand.
Destabilize aggregate demand.
Have almost no impact on aggregate demand.
Shift aggregate demand to the left during a recession.

10. If full-employment income is produced, the economy can reduce a recessionary gap by:
Decreasing government spending.
Decreasing investment spending.
Increasing consumer spending.
Increasing taxes.

11. Suppose an economy has an upward-sloping AS curve and an inflationary gap equal to $10 billion. If AD shifts to the left by $10 billion:
Real output will fall by less then $10 billion.
Real output will fall by $10 billion.
The inflationary gap will be eliminated.
A recessionary gap will be created.

12. Assume there is no foreign trade and the economy is in equilibrium. If actual investment is greater than desired investment then it is most likely that:
Saving plus government spending is greater than investment plus taxes.
Saving plus taxes is greater than investment plus government spending.
Investment plus taxes is greater than saving plus government spending.
Investment plus government spending is greater than saving plus taxes.

13. Suppose an economy can be described by the consumption function C = 75 + 0.80YD and I = $50. What is the multiplier?
0.20
0.80
5
1.25

14. If equilibrium GDP exceeds full-employment GDP:
The difference is the recessionary GDP gap.
The difference is the inflationary GDP gap.
Then inventories will accumulate.
Leakages must be greater than injections.

15. A decline in household income that sets off a multiplier process causes:
An increase in AS.
A decrease in AS.
An increase in AD.
A decrease in AD.

16. In a diagram of aggregate demand and supply curves, the GDP gap is measured as the:
a. Horizontal distance between the equilibrium output and the full-employment output.
b. Vertical distance between the equilibrium price and the price at which the aggregate demand would intersect aggregate supply at full employment.
c. Horizontal distance between the aggregate demand necessary to achieve full employment and the aggregate demand curve at equilibrium output.
d. Vertical distance between the equilibrium output and the full-employment output.

17. The general formula for computing the desired stimulus is:
AD shortfall - the multiplier.
AD shortfall + the multiplier.
AD shortfall × the multiplier.
AD shortfall ÷ the multiplier.

18. Ceteris paribus, if income was transferred from individuals with a low MPC to those with a high MPC, aggregate demand would:
Increase.
Decrease.
Stay the same.
Increase or decrease, but not because of the MPC.

19. An the marginal propensity to save (MPS) of 0.25 means a $50 million tax cut ultimately:
Reduces spending by $50 million.
Increases spending by $400 million.
Increases spending by $200 million.
Increases spending by $150 million.

20. Joan Robinson, author of "The Second Crisis of Economic Theory," is quoted saying "Keynes did not want anyone to dig holes and fill them," she is pointing out that:
a. The content of fiscal policy is as important as its aggregate impact on the economy.
b. The government should not be interfering in the economy because the jobs created are usually unproductive.
c. As far as stabilization objectives are concerned, the level of spending is the only thing that counts.
d. Keynesian economic policies do not work.

21. If full-employment output exceeds equilibrium output, greater deficit spending will result in a:
Smaller recessionary gap.
Smaller inflationary gap.
Larger recessionary gap.
Larger inflationary gap.

22. According to Keynes, an unbalanced budget is appropriate in all of the following situations except:
The economy is below full employment.
Leakages and injections are out of balance.
Macro equilibrium is above full employment.
The economy is at full employment.

23. The opportunity cost of the debt is:
The interest payments on the debt.
Less of an issue if the economy is below full employment since crowding out is less likely to occur.
Not an issue if the debt is financed internally.
The decrease in public-sector output because of government borrowing.

24. The debt would cease to grow if:
The federal government balanced its budget.
Federal expenditures were greater than federal receipts.
Debt refinancing occurred.
Interest rates fell.

25. The national debt increased by nearly $2 trillion in the 1980s because of all of the following except:
Recessions.
Tax cuts.
Defense spending.
College financing.

26. Interest payments on the national debt:
Make it easier for the government to balance the national budget.
Are a redistribution of income from taxpayers to bondholders.
Have high opportunity costs.
Are the "real burden" of the debt.

27. Which of the following is not an explanation why the Gramm-Rudman-Hollings Act proved inadequate in reducing the deficit?
The Supreme Court declared the automatic mechanism for budget cuts unconstitutional
Congress wasn't willing to cut spending enough
Congress only controls the cyclical portion of government spending
Congress wasn't willing to increase taxes enough