Chapter 23

The Keynesian Framework

D1Factual
1. Keynesian theory emphasizes A) aggregate supply. B) rational expectations. C) short-run analysis. D) Say's La . Ans er! C

D1Factual
". #n the simple Keynesian $rame or%& the price le'el A) is $ixe(. B) 'aries (irectly ith unemployment. C) 'aries in'ersely ith ages. D) is in(eterminate. Ans er! A

D1Factual
). Keynes argue( that i$ the economy is in a se'erely (epresse( state then ****************** is constant. A) real +D, B) the price le'el C) 'elocity D) nominal +D, Ans er! A

D1Factual
-. .hen examining the causes o$ unemployment& Keynes $ocuse( on A) $inancial mar%ets. B) in$lationary expectations. C) changes in technology. D) aggregate (eman(. Ans er! D

17

18/itter0Sil1er02(ell Money, Banking, and Financial Markets & 3le'enth 3(ition

D2Interpretive
4. #n the Keynesian mo(el hen (esire( in'estment excee(s (esire( sa'ing& A) in'entories rise. B) in'entories $all. C) the price le'el rises. D) the price le'el $alls. Ans er! B

D2Interpretive
5. #n the Keynesian mo(el& hen (esire( sa'ing excee(s (esire( in'estment& A) in'entories rise. B) in'entories $all. C) the price le'el rises. D) the price le'el $alls. Ans er! A

D2Interpretive
6. #n the Keynesian mo(el& a 1uil(-up o$ un ante( in'entories lea(s to A) rising interest rates. B) $alling unemployment. C) $alling output. D) $alling money ages. Ans er! C

D2Interpretive
7. #n the Keynesian mo(el& an un ante( (ecrease in in'entories lea(s to A) $alling interest rates. B) rising unemployment. C) rising output. D) $alling money ages. Ans er! C

D2Interpretive
8. #n a simple Keynesian mo(el& an increase in income lea(s to an increase in A) sa'ings. B) in'estment. C) the price le'el. D) the money supply. Ans er! A

D2Interpretive
19. #n a simple Keynesian mo(el& a (ecrease in income lea(s to a (ecrease in A) consumption. B) in'estment. C) the price le'el. D) the money supply. Ans er! A

Chapter "):he Keynesian ;rame or% 19

D2Interpretive
11. Accor(ing to Keynes& A) prices (ecline as in'entories increase. B) prices increase as in'entories increase. C) prices (ecrease as in'entories (ecrease. D) prices are stic%y an( ill pro1a1ly not respon( to a change in in'entories. Ans er! D

D1Factual
1". :he marginal propensity to consume is assume( to 1e A) greater than 1. B) less than 1. C) greater than ". D) less than 9.4. Ans er! B

D2Applied
1). #$ the marginal propensity to consume is 9.6 an( i$ output increases 1y <"99& then consumption spen(ing A) increases 1y <69. B) (ecreases 1y <69. C) increases 1y <1-9. D) (ecreases 1y <1-9. Ans er! C

D2Applied
1-. #$ total consumption spen(ing is <1&999& the marginal propensity to consume is 9.5& an( total output is <"&999& then the constant term is A) <799. B) <1&999. C) <"&999. D) <1&"99. Ans er! A

D2Factual
14. .hich o$ the $ollo ing is not re$lecte( in the constant term associate( ith the marginal propensity to consume= A) :he le'el o$ C i$ > ere zero B) ,eople?s consumption ith zero income C) All other in$luences on consumption 1esi(es income D) All o$ the a1o'e are re$lecte( in the constant term. Ans er! D

20/itter0Sil1er02(ell Money, Banking, and Financial Markets & 3le'enth 3(ition

D2Applied
15. #$ consumption e@uals <1&999 hen income is <1&999 an( increases to <1&899 hen income increases to <"&999& then the marginal propensity to consume is A) 9.49. B) 9.89. C) 1.99. D) ".99. Ans er! B

D2Applied
16. #$ consumption increases 1y <-99 hen income increases 1y <499& then the marginal propensity to consume is A) 899. B) 199. C) 1."9. D) 9.79. Ans er! D

D2Applied
17. Assume a consumption $unction o$ the $ollo ing $orm! C A 199 B .7>. #$ income is e@ual to <)&999& then consumption is A) <"&-99. B) <"&499. C) <"&899. D) <)&199. Ans er! B

D2Applied
18. Assume a consumption $unction o$ the $ollo ing $orm! C A 499 B .8>. #$ income rises 1y <199& consumption ill increase 1y A) <89. B) <449. C) <489. D) <599. Ans er! B

D1Factual
"9. #n the stan(ar( consumption $unction o$ C A a B 1>& the C,C is A) >. B) 1>. C) a. D) 1. Ans er! D

Chapter "):he Keynesian ;rame or% 21

D2Interpretive
"1. #n the stan(ar( consumption $unction o$ C A a B 1>& a change in corporate stoc% prices oul( 1e re$lecte( 1y a change in A) >. B) 1. C) a. D) 1oth a an( 1. Ans er! C

D1Factual
"". #n the Keynesian mo(el consumption is primarily (etermine( 1y ****************** an( in'estment is primarily (etermine( 1y ******************. A) the price le'elD income B) incomeD the interest rate C) incomeD the price le'el D) the interest rateD income Ans er! B

D3Applied
"). .hich o$ the $ollo ing is a plausi1le explanation $or a (o n ar( shi$t in the consumption $unction= A) A (ecline in home 'alues B) A (ecline in ages C) A (ecrease in the personal income tax rate D) A rise in ages Ans er! A

D3Applied
"-. .hich o$ the $ollo ing coul( lea( to an up ar( shi$t in the consumption $unction= A) A (ecrease in home 'alues B) A (ecline in ages C) An increase in stoc% prices D) A rise in ages Ans er! C

D1Interpretive
"4. #n the Keynesian mo(el& a (ecline in interest rates ill cause in'estment to A) increase. B) (ecline. C) remain unchange(. D) mo'e erratically& (epen(ing on the interest rate e$$ect on sa'ing. Ans er! A

22/itter0Sil1er02(ell Money, Banking, and Financial Markets & 3le'enth 3(ition

D1Interpretive
"5. An increase in interest rates ill cause in'estment to A) increase. B) (ecrease. C) not change. D) mo'e erratically& (epen(ing on the interest rate e$$ect on sa'ing. Ans er! A

D3Applied
"6. #n an economy ith no taxes& an income le'el o$ <-99 1illion& consumption o$ <)99 1illion& an( go'ernment spen(ing o$ <"4 1illion& sa'ing is e@ual to A) <"4 1illion. B) <199 1illion. C) <"64 1illion. D) <)64 1illion. Ans er! B

D2Applied
"7. #$ consumption 1eha'ior can 1e (escri1e( as C A 49 B .7>& then the sa'ing $unction is A) S A 49 B .">. B) S A E49 B .">. C) S A E49 B .7>. D) S A 49 B .7>. Ans er! B

D2Applied
"8. Assume a consumption $unction o$ C A 89 B .64>. :he sa'ing $unction $or this economy is e@ual to A) 89 B ."4>. B) E89 B .64>. C) E89 B ."4>. D) 89 B .64>. Ans er! C

D2Interpretive
)9. #$ the consumption $unction can 1e (escri1e( as C A "99 B .79>& the marginal propensity to sa'e is e@ual to A) EF9.79. B) 9.79. C) 9."9. D) "99. Ans er! C

Chapter "):he Keynesian ;rame or% 23

D2Factual
)1. #n the Keynesian 'ie & the main source o$ economic $luctuations is A) interest rates. B) in'estment. C) consumption. D) in$lation. Ans er! B

D2Factual
)". #$ the C,C is 1& then the multiplier is A) 10G1 E 1). B) 10G1 E 1). C) 10G1 B 1). D) 10G1 B 1). Ans er! A

D2Applied
)). #n the simple Keynesian expen(iture mo(el& a marginal propensity to consume o$ .8 lea(s to an expen(iture multiplier o$ A) .1. B) .8. C) 8. D) 19. Ans er! D

D2Applied
)-. 2sing the simple Keynesian mo(el ith a consumption $unction o$ C A "99 B .8>& an <19 change in (esire( in'estment lea(s to a change in e@uili1rium income o$ A) <19. B) <199. C) <"9. D) <89. Ans er! B

D2Applied
)4. #n the simple Keynesian mo(el hich has no taxes an( a sa'ing $unction hich is in the $orm S A E79 B ."9>& a <"99 increase in (esire( in'estment lea(s to an increase in e@uili1rium income o$ A) <-9. B) <199. C) <-99. D) <1999. Ans er! D

24/itter0Sil1er02(ell Money, Banking, and Financial Markets & 3le'enth 3(ition

D2Factual
)5. :he $ormula $or the e$$ect o$ any change in autonomous spen(ing& A& here 1 e@uals the C,C is A) > A A H10G1 E 1)I. B) > A A H10G1 E 1)I. C) > A A H10G1 B 1)I. D) > A A H10G1 B 1)I. Ans er! A

D3Interpretive
)6. .hich o$ the $ollo ing is an example o$ an autonomous spen(ing change= A) An increase in in'estment cause( 1y a technological inno'ation B) An increase in consumption cause( 1y an increase in interest income C) An increase in tax re'enue cause( 1y a rise in +D, D) An increase in sa'ing cause( 1y a rise in income Ans er! A

D2Factual
)7. Consumption spen(ing is ****************** an( in'estment spen(ing is ****************** in the Keynesian mo(el. A) autonomousD autonomous B) autonomousD in(uce( C) in(uce(D autonomous D) in(uce(D in(uce( Ans er! C

D2Interpretive
)8. #n the Keynesian mo(el& an increase in go'ernment spen(ing increases A) the money supply 1y an e@ual amount. B) the money supply 1y a multiple amount. C) aggregate (eman( 1y an e@ual amount. D) aggregate (eman( 1y a multiple amount. Ans er! D

D2Applied
-9. #$ the C,C is 9.8& then an increase in taxes o$ <199 can 1e expecte( to ****************** consumption 1y the amount o$ ******************. A) increaseD <89 B) (ecreaseD <89 C) increaseD <199 D) (ecreaseD <199 Ans er! A

Chapter "):he Keynesian ;rame or% 25

D2Interpretive
-1. ****************** consumption ill ****************** as a result o$ a (ecrease in taxes. A) AutonomousD (ecrease B) AutonomousD increase C) #n(uce(D (ecrease D) #n(uce(D increase Ans er! B

D1Factual
-". #$ autonomous in'estment spen(ing $alls as a result o$ a (ecline in the expecte( rate o$ return on in'estment& +D, oul( not ha'e to $all i$ the go'ernment ****************** taxes or ****************** go'ernment spen(ing. A) increase(D increase( B) increase(D (ecrease( C) (ecrease(D increase( D) (ecrease(D (ecrease( Ans er! C

D2Interpretive
-). As a result o$ a (ecline in the expecte( rate o$ return on in'estment& +D, oul( not ha'e to $all i$ the go'ernment ****************** taxes or ****************** go'ernment spen(ing. A) increase(D increase( B) increase(D (ecrease( C) (ecrease(D increase( D) (ecrease(D (ecrease( Ans er! C

D2Factual
--. #n the Keynesian mo(el& interest rates are (etermine( 1y A) aggregate (eman( an( aggregate supply. B) sa'ing an( in'estment. C) the (eman( $or an( supply o$ money. D) the 'elocity o$ money. Ans er! C

D2Interpretive
-4. #n the Keynesian mo(el& port$olio (ecisions o$ in(i'i(uals (etermine the A) in$lation rate. B) money supply. C) interest rate. D) +D,. Ans er! C

26/itter0Sil1er02(ell Money, Banking, and Financial Markets & 3le'enth 3(ition

D2Interpretive
-5. 2nli%e the Classical economists& Keynes 1elie'e( that money coul( a$$ect real economic acti'ity through its e$$ects on A) the price le'el. B) the interest rate. C) sa'ings. D) 'elocity. Ans er! B

D2Interpretive
-6. Accor(ing to Keynes& the %ey (i$$erence 1et een money an( 1on(s is that A) money is an asset. B) 1on(s are an asset. C) money is less ris%y. D) 1on(s are tax exempt. Ans er! C

D2Interpretive
-7. Accor(ing to Keynes& it is ****************** to ha'e ****************** hol(ing money. A) possi1leD capital gains or losses $rom B) impossi1leD capital gains an( losses $rom C) possi1leD a higher opportunity cost o$ D) impossi1leD a lo er opportunity cost o$ Ans er! C

D2Applied
-8. An in(i'i(ual anticipating rising interest rates is li%ely to hol( more A) money. B) real assets. C) stoc%. D) 1on(s. Ans er! A

D2Applied
49. #$ an person 1elie'es that it is li%ely that interest rates ill increase& she is li%ely to hol( less A) money. B) real assets. C) stoc%. D) 1on(s. Ans er! A

D1Factual
41. #n the Keynesian mo(el& li@ui(ity pre$erence re$ers to the A) (eman( $or capital. B) (eman( $or consumer goo(s. C) (eman( $or money. D) money supply. Ans er! C

Chapter "):he Keynesian ;rame or% 27

D2Interpretive
4". #n the Keynesian mo(el& the (eman( $or money is in'ersely relate( to A) in'estment. B) the money supply. C) the interest rate. D) the sa'ing rate. Ans er! C

D2Interpretive
4). #n the Keynesian mo(el& hich o$ the $ollo ing ill cause a re(uction in interest rates= A) An increase in money (eman( B) An increase in money supply C) An increase in sa'ing D) A (ecline in sa'ing Ans er! B

D2Interpretive
4-. #n the Keynesian mo(el& hich o$ the $ollo ing ill cause an increase in interest rates= A) An increase in money (eman( B) An increase in money supply C) An increase in sa'ing D) A (ecline in sa'ing Ans er! A

D2Interpretive
44. #n the Keynesian mo(el& i$ interest rates rise a1o'e hat people consi(er normal& househol(s ill respon( 1y A) increasing the sa'ing rate. B) re(ucing the sa'ing rate. C) hol(ing more money. D) hol(ing more 1on(s. Ans er! D

D2Interpretive
45. #n the Keynesian mo(el& i$ interest rates $all 1elo respon( 1y A) (ecreasing the sa'ing rate. B) re(ucing the sa'ing rate. C) hol(ing more money. D) hol(ing more 1on(s. Ans er! C hat people consi(er normal& househol(s ill

28/itter0Sil1er02(ell Money, Banking, and Financial Markets & 3le'enth 3(ition

D2Interpretive
46. #n the Keynesian mo(el& changes in the money supply cause changes in A) sa'ing. B) in'estment. C) go'ernment spen(ing. D) aggregate supply. Ans er! B

D2Interpretive
47. An increase in the money supply in the simple Keynesian mo(el causes A) income to $all. B) in'entories to rise. C) interest rates to $all. D) in'estment to $all. Ans er! C

D2Factual
48. #n Keynes? concept o$ the li@ui(ity trap& A) monetary policy 1ecomes more e$$ecti'e as interest rates $all 1elo normal. B) people ish to hol( more 1on(s as interest rates $all 1elo normal. C) people ish to hol( $e er 1on(s as interest rates $all 1elo normal. D) there is a nee( $or more li@ui(ity in the 1an%ing system. Ans er! C

D2Factual
59. #n the Keynesian mo(el& money (eman( is positi'ely relate( to A) income. B) interest rates. C) sa'ing. D) aggregate supply. Ans er! A

D2Interpretive
51. Accor(ing to the Keynesian 'ie o$ the (eman( $or money& an increase in uncertainty ill cause A) a (ecrease in interest rates. B) an increase in interest rates. C) an increase in aggregate income. D) an increase in consumption. Ans er! B

Chapter "):he Keynesian ;rame or% 29

D3Interpretive
5". #$ the interest rate $ell 1elo the e@uili1rium rate& people oul( attempt to ****************** 1on(s. Bon( prices oul( ****************** an( the interest rate oul(******************. A) sellD riseD $all B) 1uyD riseD $all C) sellD $allD rise D) 1uyD $allD rise Ans er! C

D3Interpretive
5). #$ the interest rate rose a1o'e the e@uili1rium rate& people oul( attempt to ****************** 1on(s. Bon( prices oul( ****************** an( the interest rate oul( ******************. A) sellD riseD $all B) 1uyD riseD $all C) sellD $allD rise D) 1uyD riseD rise Ans er! B

D2Applied
5-. #$ an in(i'i(ual earns <1&499 a month an( spen(s it e'enly throughout the month& transaction 1alances ill a'erage A) <49 per month. B) <649 per month. C) <1499 per month. D) <)999 per month. Ans er! B

D2Factual
54. :he aggregate (eman( cur'e is negati'ely slope( 1ecause a lo er price le'el A) re(uces the real money supply. B) increases the real money supply. C) re(uces aggregate income. D) increases aggregate income. Ans er! B

D3Interpretive
55. #n the Keynesian orl( a rising real money supply causes +D, to ****************** 1y ****************** the real interest rate hich causes aGn) ****************** in in'estment. A) increaseD increasingD increase B) increaseD (ecreasingD increase C) (ecreaseD increasingD increase D) (ecreaseD increasingD (ecrease Ans er! B

30/itter0Sil1er02(ell Money, Banking, and Financial Markets & 3le'enth 3(ition

D3Interpretive
56. #n the Keynesian orl( a $alling real money supply causes +D, to ****************** 1y ****************** the real interest rate hich causes aGn) ****************** in in'estment. A) increaseD increasingD increase B) increaseD (ecreasingD increase C) (ecreaseD increasingD increase D) (ecreaseD increasingD (ecrease Ans er! D

D2Interpretive
57. #n terms o$ the aggregate (eman( an( supply $rame or%& a (ecrease in the money supply ill shi$t the aggregate A) (eman( cur'e to the right. B) (eman( cur'e to the le$t. C) supply cur'e to the le$t. D) supply cur'e to the right. Ans er! B

D2Interpretive
58. #n the aggregate (eman( an( supply $rame or%& an increase in the money supply ill shi$t the aggregate A) (eman( cur'e to the right. B) (eman( cur'e to the le$t. C) supply cur'e to the le$t. D) supply cur'e to the right. Ans er! C

D2Interpretive
69. .hich o$ the $ollo ing ill cause the aggregate (eman( cur'e to shi$t to the right= A) An increase in the price le'el B) An increase in the interest rate C) An increase in money (eman( D) An increase in in'estment expen(itures Ans er! D

D2Interpretive
61. .hich o$ the $ollo ing ill cause the aggregate (eman( cur'e to shi$t to the le$t= A) An increase in the price le'el B) An increase in the interest rate C) An increase in money (eman( D) An increase in in'estment expen(itures Ans er! B

Chapter "):he Keynesian ;rame or% 31

D3Interpretive
6". #$ the aggregate supply cur'e is horizontal& an increase in aggregate (eman( ill A) increase 1oth real an( nominal +D, 1y the $ull multiplier e$$ect. B) increase nominal +D, 1ut not real +D,. C) increase the price le'el 1ut not real +D,. D) increase real +D, 1y less than the $ull multiplier e$$ect 1ecause o$ rising prices. Ans er! A

D3Interpretive
6). #$ the aggregate supply cur'e is 'ertical& an increase in aggregate (eman( ill A) increase 1oth real an( nominal +D, 1y the $ull multiplier e$$ect. B) increase real +D, 1ut not nominal +D,. C) increase the price le'el 1ut not real +D,. D) increase real +D, 1y less than the $ull multiplier e$$ect 1ecause o$ rising prices. Ans er! C

D2Interpretive
6-. A horizontal aggregate supply cur'e re$lects the assumption that the A) price le'el is constant. B) 'elocity o$ money is constant. C) sa'ing rate is e@ual to zero. D) economy is at $ull employment. Ans er! A

D2Factual
64. Accor(ing to supply-si(ers the main conse@uence o$ re(ucing tax rates is A) increases aggregate (eman( an( the price le'el. B) increases in aggregate supply. C) increases in aggregate supply an( the price le'el. D) ma%ing the aggregate supply cur'e up ar(-sloping. Ans er! B

D2Interpretive
65. #n the Jcost o$ capital channelK o$ monetary policy& a higher interest rate ****************** spen(ing. A) raises consumption B) raises in'estment C) lo ers consumption D) lo ers in'estment Ans er! D

32/itter0Sil1er02(ell Money, Banking, and Financial Markets & 3le'enth 3(ition

D2Interpretive
66. #n the Jcost o$ capital channelK o$ monetary policy& a lo er interest rate ****************** spen(ing. A) raises consumption B) raises in'estment C) lo ers consumption D) lo ers in'estment Ans er! B

D1Interpretive
67. As part o$ the J ealth channel o$ monetary policy&K a higher money supply ****************** interest rates an( thus ****************** 1on( prices. A) raisesD raises B) raisesD lo ers C) lo ersD raises D) lo ersD lo ers Ans er! C

D2Interpretive
68. As part o$ the J ealth channel o$ monetary policy&K a higher money supply ****************** 1on( prices an( thus ****************** spen(ing. A) raisesD raises consumption B) raisesD raises in'estment C) lo ersD lo ers consumption D) lo ersD lo ers in'estment Ans er! A

D2Interpretive
79. As part o$ the J ealth channel o$ monetary policy&K a lo er money supply ****************** interest rates an( thus ****************** 1on( prices. A) raisesD raises B) raisesD lo ers C) lo ersD raises D) lo ersD lo ers Ans er! B

D2Interpretive
71. As part o$ the J ealth channel o$ monetary policy&K a lo er money supply ****************** 1on( prices an( thus ****************** spen(ing. A) raisesD raises consumption B) raisesD raises in'estment C) lo ersD lo ers consumption D) lo ersD lo ers in'estment Ans er! C

Chapter "):he Keynesian ;rame or% 33

D3Interpretive
7". As part o$ the Jexchange rate channel o$ monetary policy&K a higher money supply causes a ****************** interest rate an( thus ****************** o$ the (omestic currency. A) higherD appreciation B) higherD (epreciation C) lo erD appreciation D) lo erD (epreciation Ans er! D

D3Interpretive
7). As part o$ the Jexchange rate e$$ect o$ monetary policy&K a lo er money supply causes a ****************** interest rate an( thus ****************** o$ the (omestic currency. A) higherD appreciation B) higherD (epreciation C) lo erD appreciation D) lo erD (epreciation Ans er! A

D3Interpretive
7-. As part o$ the Jexchange rate e$$ect o$ monetary policy&K a higher money supply causes ****************** o$ the (omestic currency an( thus ****************** net exports. A) appreciationD rising B) appreciationD $alling C) (epreciationD rising D) (epreciationD $alling Ans er! C

D3Interpretive
74. As part o$ the Jexchange rate e$$ect o$ monetary policy&K a lo er money supply causes ****************** o$ the (omestic currency an( thus ****************** net exports. A) appreciationD rising B) appreciationD $alling C) (epreciationD rising D) (epreciationD $alling Ans er! B