ECONOMICS CHAPTER
10 |TEST QUESTIONS
WITH ANSWERS
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
, b and c
Refer to Exhibit 10-6. If investment increases, it follows that the TE curve will shift upward,
- possibly passing through point 2.
Keynes believed that saving is more responsive to changes in income than to changes in
- interest rates.
According to the Keynesian consumption function, an increase in disposable income will result in
- an increase in consumption.
Refer to Exhibit 10-2. At M, - TE > TP.
If we graph the consumption function such that it cuts the vertical axis at a point above the origin,
this is because we are assuming that - autonomous consumption is positive.
Keynes assumed consumption is - directly related to disposable income.
The multiplier process following a drop in autonomous spending is just as powerful as for a
- rise in autonomous spending.
Refer to Exhibit 10-7. If investment decreases, which of the following is possible? - The AD curve
shifts leftward from AD4 to AD3, the price level falls, and Real GDP remains constant.
Which of the following statements is false? MPC is additional saving divided by additional
- disposable income.
Keynes argued that - monopolistic elements in the economy will prevent an immediate sharp fall in
prices as a result of decreasing demand.
wages and prices are not flexible in a downward direction.
a and b
10 |TEST QUESTIONS
WITH ANSWERS
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
, b and c
Refer to Exhibit 10-6. If investment increases, it follows that the TE curve will shift upward,
- possibly passing through point 2.
Keynes believed that saving is more responsive to changes in income than to changes in
- interest rates.
According to the Keynesian consumption function, an increase in disposable income will result in
- an increase in consumption.
Refer to Exhibit 10-2. At M, - TE > TP.
If we graph the consumption function such that it cuts the vertical axis at a point above the origin,
this is because we are assuming that - autonomous consumption is positive.
Keynes assumed consumption is - directly related to disposable income.
The multiplier process following a drop in autonomous spending is just as powerful as for a
- rise in autonomous spending.
Refer to Exhibit 10-7. If investment decreases, which of the following is possible? - The AD curve
shifts leftward from AD4 to AD3, the price level falls, and Real GDP remains constant.
Which of the following statements is false? MPC is additional saving divided by additional
- disposable income.
Keynes argued that - monopolistic elements in the economy will prevent an immediate sharp fall in
prices as a result of decreasing demand.
wages and prices are not flexible in a downward direction.
a and b
