ECON162 Macroeconomic – In the fixed-price Keynesian model

ECON 162 Binghamton University Macroeconomic Questions

QUESTION 1 1. In the fixed-price Keynesian model

a. wages, prices, rents and interest rates are flexible so that markets always clear.

b. there is no money illusion.

c. wages may be sticky so that involuntary unemployment may exist in labor markets.

d. supply creates its own demand.

e. none of the above

QUESTION 2 1. Compared to the Keynesian model, the classical model

a. is a demand-side model.

b. is a supply-side model.

c. believes that government intervention is necessary in times of recession.

d. was dominant after the Great Depression

e. believes that nominal variables are relevant in economic decision making.

QUESTION 3 1. In the Keynesian model, an increase in income will lead to an increase in consumption spending.

True

False

QUESTION 4 1. In the classical model, output adjusts to spending.

 True

 False

QUESTION 5 1. Suppose that the MPC is equal to 0.8 and autonomous consumption spending is 400. Then the consumption function is given by

a. C = 400 – 0.8Yd

b. C = -400 + 0.2Yd

c. C = 320 x Yd

d. C = 400 + 0.8Yd

e. C = 400 + 0.2Yd

QUESTION 6 1. Suppose that the MPC is equal to 0.8 and autonomous consumption spending is 400. At what level of income is saving = 0?

a. 400

b. 500

c. 2000

d. 320

e. 1200

QUESTION 7 1. The saving function

a. . is an upward-sloping straight line with a vertical intercept of -C0 and a slope of (1 – b).

b. shows that in some ranges of income saving may be negative.

c. is given by the equation S = -C0 + (1 – b)Yd

d. can be derived from the consumption function.

e. all of the above

QUESTION 8 1. Assume the following Keynesian model for the economy of Boogerland: AE = C + I + G + (X – M) C = 200 + .75Y I = 400 G = 200 (X – M) = 200 T=0 What is the equilibrium level of real GDP?

a. Y* = 4000

b. Y* = 1000

c. Y* = 3200

d. Y* = 750

e. Y* = 2400

QUESTION 9 9. The following table shows the levels of various aggregate economic variables for the economy of Trumpland: Y C S I G 0 20 -120 40 40 20 100 100 100 -100 40 40 20 100 200 180 -80 40 40 20 100 300 260 -60 40 40 20 100 400 340 -40 40 40 20 100 500 420 -20 40 40 20 100 600 500 0 40 40 20 100 700 580 20 40 40 20 100 800 660 40 40 40 20 100 900 740 60 40 40 20 100 1000 820 80 40 40 20 100 In Trumpland, what is the MPC? (X – M) T

a. MPC = 0.2

 b. MPC = 0.8

c. MPC = 1

d. MPC = 0.9

e. MPC = 0.75

 QUESTION 10 1. Referring to the question above, what is the equilibrium level of real GDP in Trumpland?

a. Y* = 400

b. Y* = 500

c. Y* = 600

d. Y* = 700

e. Y* = 800