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Multiple Choice Quiz
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1
In the Keynesian model of income determination, the adjustment that leads the economy to the equilibrium level of output is based on
A)unintended inventory changes
B)continuous government intervention
C)changes in households' saving behavior
D)inflows or outflows of funds from or to foreign countries
2
The equation for aggregate consumption used in this chapter is C = Co + cY. From this equation we know that the marginal propensity to consume
A)is always positive and greater than one
B)is always positive but less than one
C)shows the proportion of total income that is spent on consumption
D)changes with changes in income
3
Assume a model with no government and no foreign sector. If the consumption function is defined as C = 800 + (0.8)Y, and the income level is Y = 2,000, then the level of total saving is
A)-800
B)-400
C)0
D)400
4
Assume a model with no government and no foreign sector. If we have a savings function that is defined as S = - 200 + (0.1)Y and autonomous investment decreases by 50, by how much will consumption change?
A)-100
B)-250
C)-450
D)-500
5
Assume a model without income taxation and no foreign sector. If government purchases are increased by $25 billion financed by a lump sum tax increase of $25 billion, then
A)national income will increase by $25 billion but the budget deficit is unaffected
B)national income will increase $50 billion but the budget deficit is unaffected
C)neither national income nor the budget deficit will be affected
D)we cannot say for sure what will happen to national income or the budget deficit
6
The size of the expenditure multiplier increases with an increase in
A)government transfer payments
B)the marginal propensity to save
C)marginal propensity to consume
D)the income tax rate
7
Assume the savings function is S = - 200 + (1/4)YD and the marginal tax rate is t = 20%. If the level of government spending increases by 100, by how much will the level of equilibrium income change?
A)250
B)300
C)400
D)850
8
Assume a model of the expenditure sector with income taxes. If the level of autonomous investment decreases (due to negative business expectations), which of the following will be true?
A)the actual budget surplus will not be affected
B)the actual budget surplus will increase
C)the structural budget surplus will decrease
D)the cyclical component of the budget surplus will decrease
9
Assume the consumption function is C = 600 + (3/4)YD and the income tax rate is t = 20%. What will be the effect on the actual budget surplus of an increase in autonomous investment by 200?
A)an increase by 150
B)an increase by 100
C)an increase by 40
D)the budget surplus will not be affected at all
10
Assume the consumption function is C = 200 + (0.8)YD and the income tax rate is t = 0.25. What will be the effect of an increase in government transfers by ΔTR = 100 on the full-employment budget surplus?
A)an increase by 60
B)an increase by 75
C)an decrease by 100
D)the full-employment budget surplus will not be affected at all





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