Title: Keynesian Policy Implications
Course: TEST Course

Q: What is true about the expenditure multiplier?
- GDP does not change proportionally.
- A larger change in expenditure causes a smaller change in GDP.
- GDP changes when the aggregate expenditure changes.
A: GDP changes when the aggregate expenditure changes.

Q: Which statement is the most accurate explanation of the expenditure multiplier?
- As GDP changes it does so disproportionally.
- A small change in GDP is caused by a large change in expenditure.
- When the aggregate expenditure changes, GDP changes.
A: When the aggregate expenditure changes, GDP changes.

Q: Of the following statements, which is inaccurate for explaining the expenditure multiplier effect?
- The multipliers value is greater than one.
- The multiplier is a ratio of the change in aggregate expenditure to the change in GDP.
- When the expenditure multiplier changes GDP does not change.
A: When the expenditure multiplier changes GDP does not change.

Q: Which of the following statements about the expenditure multiplier effect is a false statement?
- The multiplier has a value greater than one.
- The multiplier is a ratio of the change in GDP to the change in aggregate expenditure.
- GDP does not change when the expenditure multiplier changes.
A: GDP does not change when the expenditure multiplier changes.

Q: Which is true about the expenditure multiplier effect?
- The initial increase in spending has a smaller impact on the economy than the initial cash infusion.
- The initial increase in spending has no impact.
- The initial increase in spending has a larger impact on the economy than the initial cash infusion.
A: The initial increase in spending has a larger impact on the economy than the initial cash infusion.

Q: Which one of the following statements is accurate in explaining the expenditure multiplier effect?
- A cash infusion into an economy has a larger impact than an increase is spending.
- There is no impact from an increase in spending.
- A cash infusion has less of an impact on an economy than an increase in spending.
A: A cash infusion has less of an impact on an economy than an increase in spending.

Q: Since the change in GDP is a greater change than in the expenditure model the multiplier has a value ________.
- less than one
- equal to one
- greater than one
A: greater than one

Q: In comparison with an expenditure module, the multiplier effect produces a great change in GDP and therefore its value is ________.
- less than one
- equal to one
- greater than one
A: greater than one

Q: Why does the multiplier effect exist?
- Because a change in expenditures induces households to save.
- Because a change in expenditures induces the country to export.
- Because a change in expenditures leads to changes in income, which generates further spending.
A: Because a change in expenditures leads to changes in income, which generates further spending.

Q: What is the reason behind why the multiplier effect exists?
- A change in spending induces households to save.
- A change in spending induces the country to export.
- Income is changed when there is a change in spending, which generates further spending.
A: Income is changed when there is a change in spending, which generates further spending.

Q: If government spending increases by $4 billion and real GDP increases by $8 billion, the expenditure multiplier must be ________.
- 1.5
- 3.0
- 2.0
A: 2.0

Q: If government spending increases by $3 billion and real GDP increases by $4.5 billion, the expenditure multiplier must be ________.
- 4.5
- 3.0
- 1.5
A: 1.5

Q: The government decides to increase its spending by $6 billion. Over time the real GDP increased by $9 billion. The expenditure multiplier is ________ 1.5.
- lower than
- higher than
- equal to
A: equal to

Q: The government decides to increase its spending by $3 billion. Over time the real GDP increased by $12 billion. The expenditure multiplier is ________ 3.5.
- lower than
- equal to
- higher than
A: higher than

Q: If the MPC is 75%, what is the spending multiplier?
- .75
- 1.33
- 4
A: 4

Q: What is the spending multiplier if the MPC is 62%?
- 1.61
- .62
- 2.63
A: 2.63

Q: If the expenditure multiplier is 2.5 and the government spending increases by $4 billion, what would be the increase in the real GDP?
- $8 billion
- $6.5 billion
- $10 billion
A: $10 billion

Q: If government spending increased by $5 billion and the expenditure multiplier is 3.2, what would be the increase in the real GDP?
- $8.2 billion
- $15 billion
- $16 billion
A: $16 billion

Q: When real GDP is less than potential GDP, the economy is experiencing
- inflation.
- full employment.
- a GDP gap.
A: a GDP gap.

Q: When real GDP is more than potential GDP, the economy is experiencing
- inflation.
- full employment.
- a GDP gap.
A: a GDP gap.

Q: The GDP gap shrinks
- as the Fed contracts the economy.
- as the government uses discretionary fiscal policy to reduce the budget deficit.
- as the economy recovers from recession.
A: as the economy recovers from recession.

Q: When does the GDP gap shrink?
- It shrinks as the economy is contracting with government intervention.
- It shrinks as the government reduces the budget deficit through discretionary fiscal policy.
- It shrinks as the economy recovers from recession.
A: It shrinks as the economy recovers from recession.

Q: When the economy experiences an inflationary boom, the GDP gap is:
- positive.
- zero.
- negative.
A: negative.

Q: The GDP gap is ________ when the economy experiences an inflationary boom.
- positive
- zero
- negative
A: negative

Q: What happens to the GDP gap when the economy is experiencing a bust, or recession?
- It tends to be negative.
- It tends to be zero.
- It tends to be positive.
A: It tends to be positive.

Q: When considering an economy in recession, how does the GDP gap react?
- It ends up being negative.
- It ends up being zero.
- It ends up being positive.
A: It ends up being positive.

Q: Keynesian economists believe that the economy needs to be influenced in order to correct itself from the effects of unemployment and inflation. This can be done through ________ policies.
- monetary
- accounting
- fiscal
A: fiscal

Q: What type of policies does a Keynesian economist say need to be used to influence the economy to correct for unemployment and inflation?
- production policies
- reduction policies
- fiscal policies
A: fiscal policies

Q: Keynesians believe the economy is characterized by recessions and inflationary booms which can cause unemployment and inflationary concerns. The solutions to a recession causing unemployment is expansionary fiscal policy in the form of ________.
- tax increases and decreased government spending
- increasing the discount rate to influence the fed fund rate
- tax cuts and increased government spending
A: tax cuts and increased government spending

Q: The economy modulates between recessions, which cause unemployment, and inflationary times causing inflationary problems. According to the Keynesian economic view, during a recession with vast unemployment, expansionary fiscal policies should be used. These type of policies include ________.
- decreased government spending and tax increases
- influencing the federal funding rate by increasing the discount rate
- increasing government spending and tax cuts
A: increasing government spending and tax cuts

Q: Keynesians believe the economy is characterized by recessions and inflationary booms which can cause unemployment and inflationary concerns. The solutions to a boom causing inflation (high price levels) is contractionary fiscal policy in the form of ________.
- tax cuts and increased government spending
- increasing the discount rate to influence the fed fund rate
- tax increases and decreased government spending
A: tax increases and decreased government spending

Q: The economy moves between recessions (high unemployment), and inflationary times causing inflationary problems. According to the Keynesian economic view, during a briskly productive economy which causes inflation and prices to rise, contractionary fiscal policies should be used. These type of policies include ________.
- increasing government spending and tax cuts
- influencing the federal funding rate by increasing the discount rate
- decreased government spending and tax increases
A: decreased government spending and tax increases

Q: The Keynesian approach focuses on aggregate demand and sticky prices has proven useful in understanding how the economy fluctuates in the ________-run and why recessions and cyclical unemployment occur.
- long
- gap
- short
A: short

Q: Unlike the neoclassical approach to the economy, the Keynesian approach focuses on sticky prices and aggregate demand. This focus is advantageous for understanding the reason cyclical unemployment and recessions occur, as these fluctuations take place in the ________ -run.
- long
- gap
- short
A: short