CHAPTER 7.1 - part 1

1. For the purposes of the Keynesian cross, planned expenditure consists of:

a. planned investment.

b. planned government spending.

c. planned investment and government spending.

d. planned investment, government spending, and consumption expenditures.

• a

• b

• c

• d

2. 2.In the Keynesian-cross model, actual expenditures equal:

A) GDP.

B) the money supply.

C) the supply of real balances.

D) unplanned inventory investment.

• a

• b

• c

• d

3. In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of:

A) liquidity preference.

B) the government-purchases multiplier.

C) unplanned inventory investment.

D) real money balances.

• a

• b

• c

• d

4.The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

A) income equals consumption plus investment plus government spending.

B) planned expenditure equals consumption plus planned investment plus government spending.

C) actual expenditure equals planned expenditure.

D) actual saving equals actual investment.

• a

• b

• c

• d

5. In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by ______ and increases the equilibrium level of income by ______.

A) $1 billion; more than $1 billion

B) $0.75 billion; more than $0.75 billion

C) $0.75 billion; $0.75 billion

D) $1 billion; $1 billion

• a

• b

• c

• d

6. In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures ______ for any given level of income.

A) increase by 100

B) increase by more than 100

C) decrease by 100

D) increase, but by less than 100

• a

• b

• c

• d

7. In the Keynesian-cross model with a given MPC, the government-expenditure multiplier ______ the tax multiplier.

A) is larger than

B) equals

C) is smaller than

D) is the inverse of the

• a

• b

• c

• d

8. In the Keynesian-cross model, a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income.

A) increases; increases

B) increases; decreases

C) decreases; decreases

D) decreases; increases

• a

• b

• c

• d

9. Using the Keynesian-cross analysis, assume that the consumption function is given by C = 100 + 0.6(Y – T). If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is:

A) 200.

B) 240.

C) 250.

D) 260.

• a

• b

• c

• d