Chapter 19

The net exports line can be a. positive. b. negative. c. zero. d. any of the above.

There will be unplanned inventory investment accumulation when a. aggregate output (real GDP) equals aggregate expenditures. b. aggregate output (real GDP) exceeds aggregate expenditures. c. aggregate expenditures exceed aggregate output (real GDP). d. firms increase output.

John Maynard Keynes proposed that the multiplier effect can correct an economic depression. Based on this theory, an increase in equilibrium output would be created by an initial a. increase in investment. b. increase in government spending. c. decrease in government spending. d. both (a) and (b). e. both (a) and (c).

The spending multiplier is defined as a. $1/(1-$ marginal propensity to consume). b. $1/$ (marginal propensity to consume). c. $1/(1-$ marginal propensity to save). d. $1/$ marginal propensity to consume $+$ marginal propensity to save).

If the value of the marginal propensity to consume $(MPC)$ is $0.50,$ the value of the spending multiplier is a. 0.50. b. 1. c. 2. d. 5.

If the marginal propensity to consume $(MPC)$ is $0.80,$ the value of the spending multiplier is a. 2. b. 5. c. 8. d. 10.

If the marginal propensity to consume $(MPC)$ is $0.75,$ a $\mathrm{\$}50$ billion decrease in government spending would cause equilibrium output to a. increase by $\mathrm{\$}50$ billion. b. decrease by $\mathrm{\$}50$ billion. c. increase by $\mathrm{\$}200$ billion. d. decrease by $\mathrm{\$}200$ billion.

If the marginal propensity to consume (MPC) is $0.90,$ a $\mathrm{\$}100$ billion increase in planned investment expenditure, other things being equal, will cause an increase in equilibrium output of a. $\mathrm{\$}90$ billion. b. $\mathrm{\$}100$ billion. c. $\mathrm{\$}900$ billion. d. $\mathrm{\$}1,000$ billion.

Keynes's criticism of the classical theory was that the Great Depression would not correct itself. The multiplier effect would restore an economy to full employment if a. government would follow a "least government is the best government" policy. b. government taxes were increased. c. government spending were increased. d. government spending were decreased.

The equilibrium level of real GDP is $\mathrm{\$}1,000$ billion, the full-employment level of real GDP is $\mathrm{\$}1,250$ billion, and the marginal propensity to consume $(MPC)$ is $0.60.$ The fullemployment target can be reached if government spending is a. increased by $\mathrm{\$}60$ billion. b. increased by $\mathrm{\$}100$ billion. c. increased by $\mathrm{\$}250$ billion. d. held constant.