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Question 1 of 10

1. Question

10 points

According to John Maynard Keynes, whose responsibility is it to achieve full employment?

The government
Consumers
Businesses
Foreign markets

Question 2 of 10

2. Question

10 points

According to classical economists, how does an economy achieve or maintain full employment?

Through corrections of free market forces (adjustments in prices, wages, interest rates, etc.)
Through corrections by governments in the form of changes in spending, taxation and the money supply
Through protectionist corrections in the form of tariffs and quotas on imported goods and services
By discouraging technology and automation

Question 3 of 10

3. Question

10 points

When the economy is in a recession, Keynes recommended:

All of the listed choices are suggestions Keynes supported during recessionary times
increases in government spending and decreases in taxes
for the government to run deficits
increases in the nation's money supply

Question 4 of 10

4. Question

10 points

When the economy is in a recession, classical economists recommend:

for the government to become less involved in the economy and to allow free market forces to improve the economy
for the government to become more involved and to increase taxes and regulations on businesses
for the central bank to significantly increase the money supply and lower interest rates
for the government to impose restrictions on foreign trade and immigration

Question 5 of 10

5. Question

10 points

According to our text, following Keynesian recommendations may lead to economic stimulus in the __________, but will harm the economy in the __________.

short run; long run
long run; short run
domestic economy; international economy
real economy; underground economy

Question 6 of 10

6. Question

10 points

In the Keynesian model, the relationship between the multiplier and the change in government spending is as follows:

multiplier * change in government spending = change in total spending in the economy
change in government spending = multiplier * change in total spending in the economy
change in government spending + change in total spending in the economy = multiplier
change in government spending/multiplier = change in total spending in the economy

Question 7 of 10

7. Question

10 points

In the Keynesian model, if the marginal propensity to consume is .8 and a country’s government spends an additional $60 billion, what is the change in total spending in the economy?

total spending in the economy increases by $300
total spending in the economy increases by $48
total spending in the economy increases by $480
total spending in the economy decreases by $250

Question 8 of 10

8. Question

10 points

In the Keynesian model, if the MPS is .25 and the government increases taxes by $40 billion, then what is the change in total spending in the economy?

Total spending in the economy decreases by $120 billion
Total spending in the economy decreases by $160 billion
Total spending in the economy increases by $120 billion
Total spending in the economy increases by $160 billion

Question 9 of 10

9. Question

10 points

In the Keynesian model, if the MPS is .2, and if the economy experiences a recessionary gap of $500 billion, then which of the following combinations of government spending and taxation changes will eliminate the recessionary gap and bring about full employment?

An increase in government spending of $60 billion and a decrease in taxes of $50 billion
An increase in government spending of $70 billion and a decrease in taxes of $30 billion
An increase in government spending of $50 billion and an increase in taxes of $50 billion
A decrease in government spending of $40 billion and a decrease in taxes of $60 billion

Question 10 of 10

10. Question

10 points

Classical economists emphasize stimulating the supply rather than the demand side of the economy. In the aggregate demand and aggregate supply model they illustrate that an increase in aggregate supply leads to:

an increase in real GDP and a decrease in the overall price level in the economy
an increase in real GDP and an increase in the overall price level in the economy
an increase in real GDP and a constant price level in the economy
an increase in nominal GDP and a increase in the overall price level in the economy

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Unit 5