ECONOMICS CHAPTER 10 |TEST QUESTIONS
WITH ANSWERS
A simple Keynesian model is representative of a closed economy, with no foreign sector. - True
The answer is: "It is sometimes in the best interest of business firms to pay their employees higher-
than-equilibrium wage rates." What is the question? - What do efficiency wage models imply?
If autonomous consumption rises, the TE curve shifts __________, the marginal propensity to
consume __________, and the TP curve __________. - upward; remains unchanged; remains
unchanged
Many economists argue that the labor market may take a long time for wages to adjust to new
equilibrium level. - True
According to Keynes, the dollar amount households plan to save - sometimes equals the dollar
amount firms plan to invest.
The part of consumption that is dependent on disposable income is called autonomous
consumption. - False
If income rises from $10,000 to $10,600 and consumption rises from $9,100 to $9,622, the marginal
propensity to save (MPS) is - 0.13
Refer to Exhibit 10-8. Autonomous consumption (Co) is equal to - $400
When total expenditure (TE) exceeds total production (TP), inventory levels rise unexpectedly, which
sends a signal to firms that they have overproduced, so they cut back on production. - True
Refer to Exhibit 10-8. When disposable income equals $1,500, saving equals - -$100
Refer to Exhibit 10-1. Equilibrium Real GDP occurs at - Q2
, For Say's law to hold in a money economy, - funds saved must give rise to an equal amount of
funds invested.
Which of the following is not an aspect of Keynesian economics? - Unemployment above
natural unemployment is always a brief and temporary phenomenon.
The efficiency wage model contains the assumption that labor productivity __________ the wage
rate, so that a firm maximizing its profits __________ pay workers an above-market wage rate. -
depends on; may
The efficiency wage model is an explanation of wage __________ and thus a support for the
____________________ view. - marginal propensity to consume.
The ratio of the change in consumption to the change in disposable income is called the -
marginal propensity to consume.
Keynes believed that investment is - dependent on a number of factors, including business
expectations.
According to Keynes, aggregate demand could be too low in an economy. What does this mean? -
It means spending in the economy is too low to bring about full employment.
Which of the following is a characteristic of consumption according to Keynes? - consumption
depends on disposable income
consumption and disposable income have a direct relationship
when disposable income changes, consumption changes by less
a, b, and c
Refer to Exhibit 10-7. If autonomous consumption increases, which of the following is possible? -
The AD curve will shift rightward from AD1 to AD2, the price level will remain constant, and
Real GDP will rise.
In the simple Keynesian model, there are three simplifying assumptions. Among these assumptions
is: - no foreign sector
the price level is constant until the economy reaches its full-employment level
WITH ANSWERS
A simple Keynesian model is representative of a closed economy, with no foreign sector. - True
The answer is: "It is sometimes in the best interest of business firms to pay their employees higher-
than-equilibrium wage rates." What is the question? - What do efficiency wage models imply?
If autonomous consumption rises, the TE curve shifts __________, the marginal propensity to
consume __________, and the TP curve __________. - upward; remains unchanged; remains
unchanged
Many economists argue that the labor market may take a long time for wages to adjust to new
equilibrium level. - True
According to Keynes, the dollar amount households plan to save - sometimes equals the dollar
amount firms plan to invest.
The part of consumption that is dependent on disposable income is called autonomous
consumption. - False
If income rises from $10,000 to $10,600 and consumption rises from $9,100 to $9,622, the marginal
propensity to save (MPS) is - 0.13
Refer to Exhibit 10-8. Autonomous consumption (Co) is equal to - $400
When total expenditure (TE) exceeds total production (TP), inventory levels rise unexpectedly, which
sends a signal to firms that they have overproduced, so they cut back on production. - True
Refer to Exhibit 10-8. When disposable income equals $1,500, saving equals - -$100
Refer to Exhibit 10-1. Equilibrium Real GDP occurs at - Q2
, For Say's law to hold in a money economy, - funds saved must give rise to an equal amount of
funds invested.
Which of the following is not an aspect of Keynesian economics? - Unemployment above
natural unemployment is always a brief and temporary phenomenon.
The efficiency wage model contains the assumption that labor productivity __________ the wage
rate, so that a firm maximizing its profits __________ pay workers an above-market wage rate. -
depends on; may
The efficiency wage model is an explanation of wage __________ and thus a support for the
____________________ view. - marginal propensity to consume.
The ratio of the change in consumption to the change in disposable income is called the -
marginal propensity to consume.
Keynes believed that investment is - dependent on a number of factors, including business
expectations.
According to Keynes, aggregate demand could be too low in an economy. What does this mean? -
It means spending in the economy is too low to bring about full employment.
Which of the following is a characteristic of consumption according to Keynes? - consumption
depends on disposable income
consumption and disposable income have a direct relationship
when disposable income changes, consumption changes by less
a, b, and c
Refer to Exhibit 10-7. If autonomous consumption increases, which of the following is possible? -
The AD curve will shift rightward from AD1 to AD2, the price level will remain constant, and
Real GDP will rise.
In the simple Keynesian model, there are three simplifying assumptions. Among these assumptions
is: - no foreign sector
the price level is constant until the economy reaches its full-employment level
