Title: The Basics of Keynesian Economics
Course: TEST Course

Q: Keynes argued that the ________ was unable to keep the economy at full employment. As a result, ________ should take an active role in managing the economy.
- public sector; government
- private sector; corporations
- private sector; government
A: private sector; government

Q: Keynes argued that the private sector was ________. As a result, government should ________ in managing the economy.
- able to keep the economy at full employment; take an passive role
- unable to keep the economy at full employment; take an passive role
- unable to keep the economy at full employment; take an active role
A: unable to keep the economy at full employment; take an active role

Q: Keynes believed that the government should ________ to get the economy out of recession:
- increase taxes and reduce government spending.
- increase taxes and/or increase spending.
- decrease taxes and/or increase government spending.
A: decrease taxes and/or increase government spending.

Q: According to Keynes what should the government do improve economic conditions during a recession?
- reduce government spending and increase taxes.
- increase spending and/or increase taxes.
- increase government spending and/or decrease taxes
A: increase government spending and/or decrease taxes

Q: Which of the following statements represents a Keynesian point of view of macroeconomics?
- Focus on long-term growth in the economy.
- Aggregate supply is the primary determinant of economic output.
- Increases in aggregate demand can reduce unemployment.
A: Increases in aggregate demand can reduce unemployment.

Q: Which one of the following statements best represents the Keynesian Perspective?
- Build it and they will come.
- Build things so long as the supply is there.
- People’s demand determines what is built.
A: People’s demand determines what is built.

Q: Consumption, investment, government spending, and net exports are
- all complementary elements of a market economy.
- some of the opposing elements found in a market economy.
- all components of aggregate demand.
A: all components of aggregate demand.

Q: What are the components included in aggregate demand?
- Consumption, private sector spending, and net imports
- Production, investment, private spending, and net imports
- Consumption, investment, government spending, and net exports.
A: Consumption, investment, government spending, and net exports.

Q: When the housing market crashed in 2007, Keynesian economists might have predicted a
- increase in home purchases, as expected future incomes increased.
- decrease in government spending to match declining tax revenues.
- decrease in consumption expenditure, as household wealth declined.
A: decrease in consumption expenditure, as household wealth declined.

Q: If Keynesian economists were analyzing the oncoming recession starting in 2007 from the housing market crash, what might they have predicted?
- Expected future incomes increasing and an increase in home purchases.
- Declining tax revenues with cause a decrease in government spending.
- A decline in household wealth leading to a decrease in consumption expenditure.
A: A decline in household wealth leading to a decrease in consumption expenditure.

Q: Jontel got a raise, which may help the economy since
- she will likely put more money in savings.
- she will likely hoard more money to prepare for fluctuations in the economy.
- she will likely consume more goods and services.
A: she will likely consume more goods and services.

Q: If Deondre gets a raise at work, his disposable income will increase and he will be likely to
- put more money in his savings account.
- save more money to prepare for fluctuations in the economy.
- consume more goods and services.
A: consume more goods and services.

Q: Which of the following is NOT considered a type of business investment expenditure?
- office structure
- producer’s durable equipment
- apartment buildings
A: apartment buildings

Q: Of the following, which is an example of a type of business investment expenditure?
- Townhouses
- Apartment buildings
- A producer’s durable equipment
A: A producer’s durable equipment

Q: When firms determine how much investment spending to make, they will strongly consider ________.
- past profits
- their wealth
- interest rates
A: interest rates

Q: What is a key component considered by businesses when determining the amount to take on with investment spending?
- previous profits
- a businesses labor pool
- interest rates
A: interest rates

Q: Fill in the blanks. According to the Keynesian perspective, the government ________ play a role in managing the macroeconomy ________.
- should not; especially when actions by consumers, firms, and trading partners fall short of expectations
- should not; when there is unemployment and inflation
- should; when the aggregate demand does not match the aggregate supply
A: should; when the aggregate demand does not match the aggregate supply

Q: If an economic decision is based on the Keynesian perspective, it proposes that the government should ________ in managing the macroeconomy when ________.
- not play a role; actions by consumers, firms, and trading partners fall short of expectations
- play a role; there is inflation and unemployment
- play a role; the aggregate demand has a significant gap with the aggregate supply
A: play a role; the aggregate demand has a significant gap with the aggregate supply

Q: What are the main ways in which government influences aggregate demand?
- increase or decrease interest rates; lower or raise tariffs
- increase or decrease the size of the military; lower or raise export production
- increase or decrease spending; lower or raise tax rates
A: increase or decrease spending; lower or raise tax rates

Q: Aggregate demand is influenced by the government in through what significant ways?
- raising or lowering tariffs; decreasing or increasing interest rates
- raising or lowering export production; decreasing or increasing business confidence
- raising or lowering tax rates; decreasing or increasing spending
A: raising or lowering tax rates; decreasing or increasing spending

Q: According to the Keynesian perspective, reasons for an increase in aggregate demand include
- decrease in foreign demand for net exports.
- relative price increase of U.S. goods.
- increase in foreign demand for net exports.
A: increase in foreign demand for net exports.

Q: Which of the following scenarios, from the Keynesian perspective, increases aggregate demand?
- Decrease in net exports because of lack of foreign.
- U.S. goods increasing in relative price.
- Increase in net exports because of foreign demand.
A: Increase in net exports because of foreign demand.

Q: If U.S. goods are relatively cheaper compared with goods of foreign places, then U.S. exports are likely to rise. This would make the aggregate demand curve ________.
- shift to the left
- remain the same.
- shift to the right
A: shift to the right

Q: Consider the following scenario. If foreign goods are relatively more expensive than U.S. goods, exports from the U.S. rise. How would this scenario make the aggregate demand curve change?
- The AD curve would shift to the left.
- The AD curve would remain unchanged.
- The AD curve would shift to the right.
A: The AD curve would shift to the right.

Q: Keynesian economics explains that recessions and depressions occur because:
- aggregate demand is high enough to motivate firms to operate at full employment.
- there are long-term shifts in aggregate supply.
- the macroeconomy may adjust only slowly to shifts in aggregate demand because wages are sticky.
A: the macroeconomy may adjust only slowly to shifts in aggregate demand because wages are sticky.

Q: What are some of the reasons, according to Keynesian analysis, of why economies have recessions and depressions?
- Businesses operate at full employment when aggregate demand is high enough to motivate them to hire more labor.
- Over the long-term, the aggregate supply curve shifts.
- The larger macroeconomy tends to adjust slowly to shifts in aggregate demand because of sticky prices.
A: The larger macroeconomy tends to adjust slowly to shifts in aggregate demand because of sticky prices.

Q: The Keynesian view of economics assumes that
- the economy must focus on long-term growth.
- economic output is primarily determined by aggregate supply.
- wages are sticky.
A: wages are sticky.

Q: What does a Keynesian analysis of economics assume?
- Macroeconomics must focus on growth in the long-term.
- It is aggregate supply that is the primary determinant of economic output..
- Prices are sticky.
A: Prices are sticky.

Q: According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is illustrated by the
- neoclassical aggregate demand-aggregate supply model.
- Keynesian cross diagram.
- Keynesian Phillips curve tradeoff.
A: Keynesian Phillips curve tradeoff.

Q: If an economist is using the macroeconomic theory that low inflation may be associated with high unemployment, and high inflation may contribute to low unemployment, what theory is the economist considering?
- A neoclassical aggregate demand-aggregate supply model.
- A Keynesian cross diagram.
- The Keynesian Phillips curve tradeoff.
A: The Keynesian Phillips curve tradeoff.

Q: The Keynesian economic framework is based on an assumption that
- an increase in government spending will cause the aggregate demand curve to shift to the left.
- people can afford a high level of government services.
- prices and wages are sticky and do not adjust rapidly to changes in aggregate demand.
A: prices and wages are sticky and do not adjust rapidly to changes in aggregate demand.

Q: Which of the following assumptions is based on a Keynesian economic framework?
- The aggregate demand curve can be shifted to the left through an increase in government spending.
- A large increase in government services is affordable to the tax base.
- Changes in aggregate demand prices does not cause wages and prices to quickly adjust because they are both sticky.
A: Changes in aggregate demand prices does not cause wages and prices to quickly adjust because they are both sticky.

Q: Price changes can cause substantial cost to company resources. An example of this is called ________.
- atm costs
- shoe leather costs
- menu costs
A: menu costs

Q: An example of ________ is when price changes cost a firm substantial resources.
- media costs
- resource costs
- menu costs
A: menu costs

Q: During recessionary times it can be hard to coordinate lower wages for workers because of the ________.
- discoordination argument
- relative wage theory
- coordination argument
A: coordination argument

Q: If an economy falls into a recession, there is no way to coordinate lower wages across the economy for workers according to Keynes because of the ________.
- complexity argument
- progressive wage theory
- coordination argument
A: coordination argument

Q: If price changes happen frequently, customers and consumers can become irritated or confused. An example like this is called a ________.
- growth cost
- opportunity cost
- menu cost
A: menu cost

Q: An example of a ________ is when the changes in prices happen often enough to cause customers and consumers to be confused or angry.
- opportunity cost
- frequency cost
- menu cost
A: menu cost

Q: When looking at an economic graph and the aggregate supply curve is flatter than the market supply curve for goods, services or labor (micro) and the price-levels are not falling, this is an example of a(n)
- microeconomic externality.
- positive externality.
- macroeconomic externality.
A: macroeconomic externality.

Q: Consider an economic graph where the aggregate supply curve is flatter than the market supply curve for services or labor or goods (micro) where price-levels don’t fall. This graph is an example of a(n)
- microeconomic externality.
- negative externality.
- macroeconomic externality.
A: macroeconomic externality.