1. Gross national product measures the current market value of final output prod
ID: 1188887 • Letter: 1
Question
1. Gross national product measures the current market value of final output produced within a country by both domestic and foreign resources.
True or False
2.An increase in business inventories would be included in the investment component of GDP.
True or False
3.Critics of supply-side economics claim that it
a.favors the wealthy
b.increases federal debt
c.can be inflationary
d.all of the above
4.According to the classical economists, demand creates its own supply
True or False
5.Aggregate demand curves tend to be very flat
True or False
6.The Keynesian AS curve is
a. flat because of unemployed resources
b.vertical because of full employment
c.upward sloping
d.downward sloping
7.The Keynesian analysis assumes that ample resources will be available to increase production if planned investment increases when the economy is at less than full employment.
True or False
8.If planned injections increase by $100 per day and the MPC is four-fifths,
a. the multiplier will be 5
b. total daily spending will ultimately increase by $150
c.the MPS will be $25
d.all of the above
9.The consumption function shows the relationship between the income received by the economy’s households and the
a. amount they plan to spend on currently produced final output
b.amount of government spending
c.amount businesses plans to spend on investment
d.level of taxes on personal income
10.Prior to Keynes, the prevailing viewpoint concerning equilibrium in the economy was that of
a.supply-side economics
b.monetarism
c.classical economics
d.depression economics
Explanation / Answer
(1) True.
GNP is the total market value of goods & services produced by an economy, plus net factor incomes received from abroad.
(2) True.
(3) (d)
The supply side theory is widely criticizes stating it favors the wealthier public, creates inflation and increases government budget deficit, therefore creating more debt.
(4) True.
Demand creates its own supply, therefore and supply shock is mitigated by either increased or decreased demand, which restores equilibrium.
(5) False.
AD curve is downward sloping and its slope can be steep or flat.
(6) (a)
Keynesian AS curve is horizontal, assuming prices & wages are sticky in short run.
(7) False.
Keynesian economy states that resources are limited in availability and cannot be increased in short run.
(8) (a)
MPS = 1 - MPC = 1 - 0.8 = 0.2
Multiplier = 1 / MPS = 1 / 0.2 = 5
Increase in spending = $100 x Multiplier = $100 x 5 = $500
Only option (a) is correct.
(9) (a)
Consumption function states the relationship between income and spending (consumption).
(10) (c)
The pre-Keynesian economic theory was classical economics.
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