SOLVED

21) Assume a consumption function of C = 90 + .75Y. The saving function for this economy is equal to A) 90 + .25Y. B) -90 + .75Y. C) -90 + .25Y. D) 90 + .75Y. 22) If the consumption function can be described as C = 200 + .80Y, the marginal propensity to save is equal to A) -0.80. B) 0.80. C) 0.20. D) 200. 23) In the Keynesian view, the main source of economic fluctuations is A) interest rates. B) investment. C) consumption. D) inflation. 24) If the MPC is b, then the multiplier is A) 1/(1 – b). B) b/(1 – b). C) 1/(1 + b). D) b/(1 + b). 25) In the simple Keynesian expenditure model, a marginal propensity to consume of .9 leads to an expenditure multiplier of A) .1. B) .9. C) 9. D) 10. 26) Using the simple Keynesian model with a consumption function of C = 200 + .9Y, an $10 change in desired investment leads to a change in equilibrium income of A) $10. B) $100. C) $20. D) $90. 27) In the simple Keynesian model which has no taxes and a saving function which is in the form S = -80 + .20Y, a $200 increase in desired investment leads to an increase in equilibrium income of A) $40. B) $100. C) $400. D) $1000. 28) The formula for the effect of any change in autonomous spending, ?A, where b equals the MPC is A) ?Y = ?A [1/(1 – b)]. B) ?Y = ?A [b/(1 – b)]. C) ?Y = ?A [1/(1 + b)]. D) ?Y = ?A [b/(1 + b)]. 29) Which of the following is an example of an autonomous spending change? A) An increase in investment caused by a technological innovation B) An increase in consumption caused by an increase in interest income C) An increase in tax revenue caused by a rise in GDP D) An increase in saving caused by a rise in income 30) Consumption spending is __________ and investment spending is __________ in the Keynesian model. A) autonomous; autonomous B) autonomous; induced C) induced; autonomous D) induced; induced 23.3Â Â Government to the Rescue 1) In the Keynesian model, an increase in government spending increases A) the money supply by an equal amount. B) the money supply by a multiple amount. C) aggregate demand by an equal amount. D) aggregate demand by a multiple amount. 2) If the MPC is 0.9, then an increase in taxes of $100 can be expected to __________ consumption by the amount of __________. A) increase; $90 B) decrease; $90 C) increase; $100 D) decrease; $100 3) __________ consumption will __________ as a result of a decrease in taxes. A) Autonomous; decrease B) Autonomous; increase C) Induced; decrease D) Induced; increase 4) If autonomous investment spending falls as a result of a decline in the expected rate of return on investment, GDP would not have to fall if the government __________ taxes or __________ government spending. A) increased; increased B) increased; decreased C) decreased; increased D) decreased; decreased 5) As a result of a decline in the expected rate of return on investment, GDP would not have to fall if the government __________ taxes or __________ government spending. A) increased; increased B) increased; decreased C) decreased; increased D) decreased; decreased