Quiz 1 Quiz 2 Quiz 3 Quiz 4 Quiz 5
Topic Quiz 1: Classical vs. Keynesian & Consumption/Investment Foundations 10 questions · explanations appear as you answer
1. Say's Law, associated with classical economics, states that: A Demand creates its own supply B Supply creates its own demand C Government spending always crowds out private investment D Wages are always sticky in the short run
2. According to classical economists, a recession would self-correct because falling output would cause: A Prices, wages, and interest rates to all rise B Prices, wages, and interest rates to all fall, restoring full employment C The government to increase spending D The aggregate demand curve to become vertical
3. John Maynard Keynes challenged classical theory primarily by arguing that: A Wages and prices adjust instantly to changes in demand B Wages and prices are sticky, especially downward, so recessions can persist C Government spending has no effect on aggregate demand D Say's Law always holds in the short run
4. A household has disposable income of $50,000 and spends $42,000 on consumption. What is its APS? A 0.84 B 0.16 C 8,000 D 1.16
5. If disposable income rises from $60,000 to $70,000, and consumption rises from $54,000 to $61,000, what is the MPC? A 0.6 B 0.7 C 0.9 D 0.3
6. If MPC = 0.65, what is MPS? A 0.65 B 0.35 C 1.65 D 0.5
7. A household's income stays exactly the same, but the stock market experiences a large rally, substantially increasing the value of the household's investment portfolio. This is most likely to: A Decrease consumption, since the household will save more B Increase consumption, due to the wealth effect C Have no effect on consumption D Only affect government spending
8. A firm is considering a $200,000 investment expected to generate $220,000 in additional revenue this year. The prevailing interest rate is 8%. Should the firm invest? A No, because the expected return is less than the interest rate B Yes, because the expected return (10%) exceeds the interest rate (8%) C No, because $200,000 is too large an investment D It cannot be determined without more information
9. The investment demand curve slopes downward because: A As the interest rate falls, more investment projects have an expected return exceeding that rate, increasing the quantity of investment demanded B As the interest rate rises, more investment projects become profitable C Investment is completely unrelated to interest rates D Higher interest rates always increase business confidence
10. Which of the following is a determinant that would shift the investment demand curve (not just move along it)? A A change in the interest rate B A significant improvement in production technology C A change in the quantity of investment demanded D A movement from one point on the curve to another