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Chapter 10—Keynesian Macroeconomics and Economic Instability: A Critique of the
Self-Regulating Economy
MULTIPLE CHOICE
1. According to Keynes, what households plan to save

a. always equals what firms plan to invest.
b. sometimes equals what firms plan to invest.
c. is always greater than what firms plan to invest.
d. is always less than what firms plan to invest.
ANS: B PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic
LOC: DISC: Understanding and applying economic models KEY: Bloom's: Comprehension
2. If households purchase $60,000 worth of consumer goods and firms produce $50,000 worth of consumer
goods, then
a. inventory changes are -$10,000.
b. inventory changes are +$10,000.
c. new capital goods expenditures (by firms) are $10,000.
d. consumer goods expenditures are $10,000.
ANS: A PTS: 1 DIF: Difficulty: Moderate
LOC: DISC: Understanding and applying economic models KEY: Bloom's: Application
3. If total production is greater than total expenditures,

a. there will be an increase in saving.
b. there will be an increase in inventories.
c. firms will then increase production.
d. firms will then increase prices.
4. When total production is greater than total expenditures, __________ is produced than households want
to buy, which leads to __________ in inventory, which signals firms that they have __________, which
causes firms to cut back production.
a. less; decreases; underproduced
b. less; increases; overproduced
c. more; decreases; underproduced
d. more; increases; overproduced
ANS: D PTS: 1 DIF: Difficulty: Moderate
5. If people buy more than has been produced,

a. the economy is in equilibrium.
b. total expenditures are greater than total production.
c. there will be an increase in inventory.
d. there will be a decrease in total output.
ANS: B PTS: 1 DIF: Difficulty: Moderate
6. When the economy is in equilibrium,

a. there are increases in inventory.
b. there are decreases in inventory.
c. total expenditures equal total production.
d. people want to buy more than will be produced.
ANS: C PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic LOC: DISC: Equilibrium
KEY: Bloom's: Comprehension
7. When there is economy-wide equilibrium, there is a tendency for

a. total output to rise.
b. total output to fall.
c. total output to remain unchanged.
d. prices to fall.
e. prices to rise.
8. When total expenditures are greater than total production, __________ is produced than households
want to buy, which leads to __________ in inventory, which signals firms that they have __________,
which causes firms to increase production.
a. less; decreases; underproduced
b. more; increases; underproduced
c. less; increases; underproduced
d. more; decreases; overproduced
9. If total production is less than total expenditures, then business firms

a. have overproduced.
b. will cut back on production.
c. will raise production.
d. will experience increases in inventory.
e. a and d
10. If total production is greater than total expenditures, then business firms
a. have underproduced.
b. will step up production.
c. will lower production.
d. will experience decreases in inventory.
e. a and b
11. The two major curves or lines in the TE-TP diagram are:
a. the total expenditure curve and the 45-degree line.
b. the supply and demand curves.
c. the total expenditures and national income curves.
d. the total production and national income curves.
ANS: A PTS: 1 DIF: Difficulty: Easy
LOC: DISC: Understanding and applying economic models KEY: Bloom's: Knowledge
Exhibit 10-1
12. Refer to Exhibit 10-1. At all points on the 45-degree line,

a. TP = Real GDP.
b. TP > Real GDP.
c. TP < Real GDP.
d. all of the above are possible.
13. Refer to Exhibit 10-1. Equilibrium Real GDP occurs at

a. Q1.
b. Q2.
c. Q3.
d. Q1 and Q3.
e. none of the above
14. Refer to Exhibit 10-1. At Q3,

a. TE > TP, and there are decreases in inventory.
b. TE = TP, and there are no changes in inventory.
c. TP > TE, and there are increases in inventory.
d. TE > TP, and there are increases in inventory.
ANS: C PTS: 1 DIF: Difficulty: Moderate
15. Refer to Exhibit 10-1. At Q1,

a. TE > TP, and there are decreases in inventory.
b. TP > TE, and there are increases in inventory.
c. TE = TP, and there are no changes in inventory.
d. TE > TP, and there are increases in inventory.
16. Refer to Exhibit 10-1. At Q3, there is a tendency for Real GDP to
a. rise.
b. fall.
c. remain unchanged.
d. There is not enough information to answer this question.
a. rise.
b. fall.
a. rise.
b. fall.
19. Consumption and disposable income are

a. indirectly related.
b. directly related.
c. not related.
d. sometimes directly and sometimes indirectly related, depending upon whether consumption
is planned or unplanned.
20. The classical economists believed __________ determined savings, while Keynes said it was
__________.
a. interest rates; income
b. income; investment
c. investment; interest rates
d. interest rates; investment
21. The horizontal investment curve used to derive the TE curve means investment is
a. directly related to Real GDP.
b. indirectly related to Real GDP.
c. independent of Real GDP.
d. sometimes directly and sometimes indirectly related to Real GDP, depending upon whether
it is planned capital or planned inventory investment.
Exhibit 10-2
22. Refer to Exhibit 10-2. Equilibrium Real GDP occurs at

a. $3,000 billion.
b. $1,500 billion.
c. $7,500 billion.
d. $4,000 billion.
e. $4,500 billion.
ANS: E PTS: 1 DIF: Difficulty: Easy
KEY: Bloom's: Application
23. Refer to Exhibit 10-2. At M,

a. TP = TE.
b. TP > TE.
c. TE > TP.
d. the relationship between TP and TE cannot be determined.
24. Refer to Exhibit 10-2. Which of the following is correct about point M?
a. TE is $4,500 billion and TP is only $1,500 billion.
b. TP is $4,500 billion and TE is only $1,500 billion.
c. TE is $7,500 and TP is only $5,500 billion.
d. TP is only $7,500 billion and TE is only $5,500 billion.
e. TE is $3,000 billion and TP is only $1,500 billion.
ANS: E PTS: 1 DIF: Difficulty: Moderate
25. Refer to Exhibit 10-2. If autonomous consumption increases, the TE curve will shift ____________ and
the new level of equilibrium Real GDP will be ___________ than $4,500.
a. downward; greater
b. downward; less
c. upward; less
d. upward; greater
NOT: New
26. Refer to Exhibit 10-2. If autonomous investment decreases, the TE curve will shift ____________ and
the new level of equilibrium Real GDP will be ___________ than $4,500.
a. downward; greater
b. downward; less
c. upward; less
d. upward; greater
NOT: New
27. Total production

a. always equals total expenditures.
b. equals total expenditures in equilibrium.
c. is always greater than total expenditures.
d. is always less than total expenditures.
28. When total production is greater than total expenditures,

a. the economy is in disequilibrium.
b. there are increases in inventory.
c. total output will decrease.
d. all of the above
29. John Maynard Keynes drew many economists ______________ the classical view. The classical view
held that a market economy __________ regulate itself to avoid periods of excessive unemployment.
a. toward; can
b. toward; cannot
c. away from; can
d. away from; cannot
30. In a recessionary gap, the implications of downward wage inflexibility are that there will be
a. further leftward shifts of AD that worsen unemployment.
b. no further leftward shifts of AD, allowing the shifts in SRAS to close the gap.
c. no further leftward shifts of SRAS, allowing the shifts in AD to close the gap.
d. no rightward shifts of SRAS, allowing for persistent high unemployment.
31. The efficiency wage model is an explanation of wage __________ and thus a support for __________
macroeconomics.
a. flexibility; Keynesian
b. flexibility; classical
c. inflexibility; Keynesian
d. inflexibility; classical
32. According to the efficiency wage model, firms tend to pay workers
a. the market-clearing wage that efficiently equates labor supplied and demanded.
b. in excess of the market-clearing wage to provide an incentive for productivity and
efficiency.
c. less than the market-clearing wage to assure themselves a pool of workers ready to replace
workers who quit.
d. less than the market-clearing wage to minimize labor cost per unit of production.
33. The efficiency wage model contains the assumption that labor productivity __________ the wage rate,
so that a firm maximizing its profits __________ pay workers an above-market wage rate.
a. is independent of; may
b. is independent of; will never
c. depends on; may
d. depends on; will never
34. Two economists, Smith and Jones, are discussing the currently high unemployment rate. Smith says that
something ought to be done quickly because the economy may not be able to restore itself to full
employment. Jones says that it is better to take a "hands-off" approach. Which of the following is most
likely to be true?
a. Smith and Jones are most likely both Keynesian economists with a few minor differences of
opinion.
b. Smith and Jones are most likely both classical economists with a few minor differences of
opinion.
c. Jones is likely to be a Keynesian economist and Smith is likely to be a classical economist.
d. Smith is likely to be a Keynesian economist and Jones is likely to be a classical economist.
e. none of the above.
35. Keynesian macroeconomists believe that the time it takes for falling wages and prices to eliminate a
recessionary gap is __________ enough to say that the economy is __________.
a. long; not self-regulating
b. long; self-regulating
c. short; not self-regulating
d. short; self-regulating
36. Keynes’s major work, The General Theory of Employment, Interest and Money, was published during
the
a. late 1800s.
b. mid-1700s.
c. 1930s.
d. Panic of 1907.
NOT: New
37. Who would be most likely to agree that "People do not always save more as interest rates rise"?
a. a classical economist
b. John Maynard Keynes
c. an efficiency wage theorist
d. a and b
e. a, b, and c
38. Autonomous consumption is
a. the change in consumption that results as a person's (or nation's) income increases or
decreases.
b. that portion of total consumption that is dependent upon the level of income.
c. the steady increase in the consumption of goods and services that automatically occurs as a
person grows from a child to an adult.
d. that portion of total consumption that is independent of the level of income.
39. Keynes believed that saving is

a. more responsive to changes in income than to changes in interest rates.
b. less responsive to changes in income than to changes in interest rates.
c. equally responsive to changes in income and to changes in interest rates.
d. dependent only on changes in interest rates.
40. Keynes believed that investment is

a. dependent on a number of factors, including business expectations.
b. mainly determined by changes in interest rates.
c. unrelated to business expectations.
d. related to business expectations only during recessionary periods.
41. Keynes believed that

a. Say's law would hold in a laissez-faire economy.
b. the economy would always be near or on its production possibilities frontier.
c. wages and prices are often inflexible in the downward direction.
d. the equilibrium level of output will always be at the full-employment level of output.
42. Which of the following statements is false?

a. Keynes believed that monopolistic elements in the economy will prevent immediate price
declines.
b. Keynes believed that during periods of high unemployment, labor unions will prevent
wages from falling fast enough to restore full employment.
c. Keynes believed that interest rate flexibility will ensure that saving is equal to investment.
d. Keynes did not believe in Say's law.
ANS: C PTS: 1 DIF: Difficulty: Challenging
43. Keynes believed that
a. the internal structure of the economy is extremely competitive and that wage-price
flexibility exists.
b. monopolistic elements in the economy prevent immediate and sharp price declines in
response to falling demand.
c. even though there are monopolistic elements in the economy, wage-price flexibility exists.
d. in spite of the competitiveness of the economy, wage-price flexibility does not exist.
ANS: B PTS: 1 DIF: Difficulty: Challenging
44. Which statement is consistent with what Keynes believed about consumption and disposable income?
a. Consumption depends upon disposable income and falls as disposable income rises.
b. Consumption rises by the same amount as disposable income rises.
c. Consumption rises by less than disposable income rises.
d. Disposable income depends upon consumption.
45. If income rises from $1,000 to $1,400 and consumption rises from $800 to $1,168, the marginal
propensity to consume is __________ percent.
a. 8
b. 85
c. 15
d. 92
NOT: New
46. The consumption function is a function showing the relationship between consumption and
a. disposable income.
b. exports.
c. interest rates.
d. investment.
47. According to the Keynesian consumption function, an increase in disposable income will result in
a. a decrease in consumption.
b. an increase in consumption.
c. a decrease in investment.
d. an increase in investment.
48. The ratio of the change in consumption to the change in income is called the
a. marginal utility of consumption.
b. average utility of consumption.
c. marginal propensity to consume.
d. average propensity to consume.
49. The marginal propensity to consume plus the marginal propensity to save is
a. equal to zero.
b. greater than zero but less than one.
c. equal to one.
d. greater than one.
50. If income rises from $1,000 to $1,400 and consumption rises from $1,100 to $1,440, the marginal
propensity to save (MPS) is
a. 0.15.
b. 0.85.
c. 0.25.
d. 0.20.
ANS: A PTS: 1 DIF: Difficulty: Challenging
NOT: New
51. Here is a consumption function: C = C0 + MPC(Yd). The C0 term is usually defined as

a. autonomous consumption.
b. point-zero consumption.
c. mandatory consumption.
d. propensitory consumption.
52. Here is a consumption function: C = C0 + MPC(Yd). If MPC is 0.80, then we know that
a. as Yd rises by $1, Co rises by $0.80.
b. as Yd rises by $1, C rises by $0.80.
c. Yd rises by $0.80.
d. as C0 rises by $0.80, Yd rises by $1.
53. Here is a consumption function: C = C0 + MPC(Yd). If C0 = $200, then we know that

a. if Yd is zero, C will be $200.
b. when Yd rises, C rises by $200.
c. when Yd falls, C falls by MPC times C0.
d. C will always equal C0.
54. If autonomous consumption rises by $20 and, as a result, Real GDP rises by $200, then the multiplier is
a. 4.
b. 5.
c. 6.
d. 10.
55. If autonomous consumption rises by $60 and, as a result, Real GDP rises by $240, then the marginal
propensity to consume is
a. 0.25.
b. 0.75.
c. 0.05.
d. 0.95.
NOT: New
56. The larger the marginal propensity to save,

a. the smaller the multiplier.
b. the larger the multiplier.
c. the smaller the change in Real GDP, given a change in autonomous consumption.
d. a and c
57. The total expenditure (TE) curve has the same slope as the __________ curve.
a. C (consumption)
b. I (investment)
c. G (government purchases)
d. NE (net exports)
58. On a TE-TP diagram consider a level of Real GDP at which the vertical distance to the TE line exceeds
the vertical distance to the 45-degree line. This Real GDP is __________ its equilibrium level, with
__________.
a. above; TE > TP
b. above; TE < TP
c. below; TE > TP
d. below; TE < TP
59. On a TE-TP diagram consider a level of Real GDP at which the vertical distance to the TE line is less
than the vertical distance to the 45-degree line. This Real GDP is __________ its equilibrium level, with
__________.
a. above; TE > TP
b. above; TE < TP
c. below; TE > TP
d. below; TE < TP
60. Suppose the MPC = 0.60 and government purchases increase by $40 billion. In Keynesian theory, which
of the following is true?
a. The TE curve shifts downward by $40 billion and Real GDP decreases by $40 billion.
b. The TE curve shifts upward by $40 billion, and Real GDP increases by $40 billion.
c. The TE curve shifts downward by $40 billion, and Real GDP decreases by $100 billion.
d. The TE curve shifts upward by $40 billion, and Real GDP increases by $100 billion.
61. Considering both the Keynesian and the aggregate demand-supply frameworks, if households as a group
experience an increase in wealth at a given price level, then the TE curve shifts __________, the AD
curve shifts __________, and Real GDP __________.
a. downward; leftward; decreases
b. downward; rightward; decreases
c. upward; rightward; increases
d. upward; leftward; increases
62. When the MPC = 0.9, the multiplier is

a. 0.20.
b. 1.25.
c. 2.50.
d. 5.00.
e. 10.00.
a. 5.00.
b. 0.25.
c. 4.00.
d. 7.50.

a. 0.40.
b. 2.50.
c. 1.67.
d. 6.00.
65. How is the multiplier expressed in terms of the MPS?

a. 1 - MPS
b. 1/MPS
c. 1/(1 - MPS)
d. 1/(1 + MPS)
66. A rise in MPC makes the total expenditures (TE) curve __________ and __________ the multiplier.
a. steeper; raises
b. steeper; lowers
c. flatter; raises
d. flatter; lowers
67. Keynes argued that

a. monopolistic elements in the economy will prevent an immediate sharp fall in prices as a
result of decreasing demand.
b. wages and prices are not flexible in a downward direction.
c. a and b
d. none of the above
68. Keynes assumed consumption is

a. inversely related to the rate of interest.
b. directly related to disposable income.
c. directly related to investment.
d. less than disposable income.
e. both b and d
Exhibit 10-3
Disposable
Consumption
Income
C
Yd
$2,000 $2,040
2,100 2,120
2,200 2,200
2,300 2,280
2,400 2,360
69. Refer to Exhibit 10-3. When disposable income equals $2,000, saving equals
a. -$20.
b. -$40.
c. 0.
d. $40.
e. $20.
a. -$20.
b. -$10.
c. 0.
d. $10.
e. $20.
71.
Refer to Exhibit 10-3. The marginal propensity to consume (MPC) is
a. 0.75.
b. 0.80.
c. 0.90.
d. 1.00.
72. Refer to Exhibit 10-3. The marginal propensity to save (MPS) is
a. 0.
b. 0.10.
c. 0.20.
d. 0.25.
73. Refer to Exhibit 10-3. The multiplier is

a. 4.
b. 5.
c. 10.
d. 1.
74. Which of the following is not an aspect of Keynesian economics?

a. Wages and prices tend to be inflexible downward.
b. Supply does not necessarily generate its own demand.
c. The interest rate is important in determining the level of investment, but not as important as
other variables.
d. Unemployment above natural unemployment is always a temporary phenomenon.
75. If the multiplier is 5, then the MPC must be

a. 1/5.
b. 1/6.
c. 3/4.
d. 4/5.
e. 2/3.
ANS: D PTS: 1 DIF: Difficulty: Challenging
76. If an economy consumes 75 percent of any increase in income, then an increase in autonomous
investment of $1 billion could result in an increase in Real GDP of as much as
a. $1.0 billion..
b. $4.0 billion.
c. $5.0 billion.
d. $1.8 billion.
e. $6.0 billion.
77. If we graph the consumption function such that it starts above the origin, this is because we are assuming
that
a. the MPC is positive.
b. the MPS is positive.
c. autonomous consumption is positive.
d. induced consumption is positive.
Exhibit 10-4
78. Refer to Exhibit 10-4. If the present level of disposable income is Yd1, autonomous consumption is equal
to
a. C0.
b. C1.
c. C2.
d. C1 - C0.
e. C2 - C1.
79. Refer to Exhibit 10-4. Marginal propensity to consume is equal to

a. AF divided by C0A.
b. C0A divided by AF.
c. AF divided by C0F.
d. C0F divided by AF.
80. Refer to Exhibit 10-4. Let Yd1 denote the present level of disposable income. An increase in disposable
income is likely to, ceteris paribus, cause a movement to point
a. A.
b. B.
c. F.
d. D.
e. E.
Exhibit 10-5
81. Refer to Exhibit 10-5 above. The equilibrium level of Real GDP is
a. $200 billion.
b. $400 billion.
c. $600 billion.
d. $800 billion.
82. Refer to Exhibit 10-5 When TE is $700 billion, what state is the economy in?
a. TE < TP, individuals are buying less output than firms produce.
b. TE > TP, individuals are buying more output than firms produce.
c. TE = TP, the economy is in equilibrium.
d. TE < TP, individuals are buying more output than firms produce.
e. TE > TP, individuals are buying less output than firms produce.
83. Refer to Exhibit 10-5 When TE is $200 billion, what state is the economy in?
a. TE < TP, individuals are buying less output than firms produce.
b. TE > TP, individuals are buying more output than firms produce.
c. TE = TP, the economy is in equilibrium.
d. TE < TP, individuals are buying more output than firms produce.
e. TE > TP, individuals are buying less output than firms produce.
84. Refer to Exhibit 10-5. When TE is $700 billion, what will firms most likely do next?
a. Firms will increase production to increase inventories to their optimum levels.
b. Firms will neither increase nor decrease production since the economy is in equilibrium.
c. Firms will cut back production to reduce inventories to their optimum levels.
d. It is impossible to determine what firms are likely to do based on this information.
85. Refer to Exhibit 10-5. When TE is $300 billion, what will firms most likely firms do next?
a. Firms will increase production to increase inventories to their optimum levels.
b. Firms will neither increase nor decrease production since the economy is in equilibrium.
c. Firms will cut back production to reduce inventories to their optimum levels.
d. It is impossible to determine what firms are likely to do based on this information.
86. Refer to Exhibit 10-5. When TE is $300 billion, what happens to inventories?
a. Inventories are at their optimum levels.
b. Inventories will fall, then rise above their optimum levels.
c. Inventories will fall below optimum levels.
d. Inventories will rise above optimum levels.
87. Refer to Exhibit 10-5. When TE is $800 billion, what happens to inventories?
a. Inventories are at their optimum levels.
b. Inventories will fall, then rise above their optimum levels.
c. Inventories will fall below optimum levels.
d. Inventories will rise above optimum levels.
88. In the real world, we should expect the multiplier process to work itself out
a. almost instantaneously.
b. within a few days.
c. within about one month.
d. only over many months, perhaps even years.
ANS: D PTS: 1 DIF: Difficulty: Easy
89. The multiplier process following a drop in autonomous spending is
a. just as powerful as for a rise in autonomous spending.
b. more powerful than for a rise in autonomous spending.
c. less powerful than for a rise in autonomous spending.
d. nonexistent, because the multiplier applies only to a rise in autonomous spending.
90. John Maynard Keynes believed that wages may be inflexible in the downward direction. Consequently,
an economy
a. could get stuck in long-run equilibrium.
b. could get stuck in a recessionary gap.
c. could get stuck in an inflationary gap.
d. would always produce more than Natural Real GDP.
e. b and c
91. The more firms that pay efficiency wages, the

a. more likely the economy will get stuck in a recessionary gap.
b. less likely the economy will get stuck in a recessionary gap.
c. more likely the economy will get stuck in an inflationary gap.
d. more likely (over time) the economy will produce Natural Real GDP.
e. b and c
92. According to efficiency wage models, labor productivity depends on

a. the number of employees at a firm; the smaller the number of employees, the more
productive each employee is.
b. the amount of capital that employees have to work with.
c. the wage rate the firm pays its employees; a cut in wages can cause labor productivity to
decline.
d. whether or not the economy is currently producing Natural Real GDP.
93. Which of the following statements is true?

a. Keynes believed wages are inflexible downward but prices (of goods and services) are
flexible.
b. Keynes believed an economy could get stuck in a recessionary gap.
c. Keynes originated the idea of efficiency wages.
d. Keynes believed the economy is self-regulating.
e. b and c
94. According to Keynes, aggregate demand could be too low in an economy. What does this mean?
a. It means there is not enough purchasing power in the economy to maintain stable prices.
b. It means there are too many of some goods produced and too few of other goods produced.
c. It means spending in the economy is too low to bring about full employment.
d. It means that wages may get stuck in a recessionary gap because there is not enough demand
(in the economy) to increase them.
95. For Say's law to hold in a money economy,

a. funds invested must give rise to an equal amount of funds spent.
b. funds saved must give rise to an equal amount of funds invested.
c. funds spent must give rise to an equal amount of output produced.
d. interest rates must fall when saving decreases.
e. b and c
96. Which of the following is consistent with the classical view of Say's law?
a. Saving increases by $2 billion and investment decreases by $2 billion.
b. Saving increases by $2 billion and consumption rises by $2 billion.
c. Saving increases by $2 billion, consumption decreases by $2 billion, and investment rises
by something less than $2 billion.
d. Saving decreases by $2 billion and consumption decreases by more than $2 billion.
97. Which of the following is consistent with Keynes's view of Say's law?
a. Saving increases by $3 billion, consumption falls by $3 billion, and investment rises by $3
billion.
b. Consumption rises by $3 billion and saving rises by more than $3 billion.
c. Saving rises by $3 billion, consumption falls by $3 billion, and investment rises by
something less than $3 billion.
d. Saving rises by $3 billion, consumption falls by $3 billion, and investment rises by $6
billion.
98. Which of the following is good evidence against the classical view of Say's law?
a. Investment does not always rise as interest rates fall.
b. Consumption falls by the amount that saving increases.
c. Exports are usually greater than imports.
d. People save more at higher interest rates than lower interest rates.
99. How does the classical position on saving differ from Keynes's position?
a. Classical position: people save more at lower interest rates. Keynes's position: people save
less at lower interest rates.
b. Classical position: changes in the interest rate are irrelevant to saving decisions. Keynes's
position: saving is directly related to the interest rate.
c. Classical position: saving is directly related to the interest rate. Keynes's position: at times,
saving may be inversely related to the interest rate.
d. Classical position: saving can be inversely related to the interest rate. Keynes's position:
consumption rises as saving rises.

a. Keynes believed that the level of investment depends on more than just the interest rate.
b. Saving is the difference between disposable income and consumption.
c. Keynes believed that saving is more responsive to changes in income than to changes in the
interest rate.
d. According to Keynes, wage rates may fall too quickly when the economy is in a
recessionary gap.
101. If consumption is $1,230 when disposable income is $1,420, and consumption is $1,400 when
disposable income is $1,620, then the marginal propensity to consume (MPC) is
a. 1.15.
b. 0.15.
c. 6.67.
d. 0.85.
NOT: New
102. Here is a consumption function: C = C0 + MPC(Yd). Which of the following is true about the
consumption function?
a. Consumption will rise if autonomous consumption or disposable income rise.
b. Consumption will fall if autonomous consumption falls or if the MPC rises.
c. Consumption will rise if autonomous consumption rises, MPC declines, or disposable
income rises.
d. For every $1 rise in autonomous consumption, consumption will also rise by $1.
e. a and d
103. Here is a consumption function: C = C0 + MPC(Yd). If consumption is $3,300, MPC =0.85, and
disposable income is $2,100, what does autonomous consumption equal?
a. $899.15
b. $450
c. $1,515
d. $4,785

a. MPC plus MPS equals 1.
b. MPC is additional saving divided by additional disposable income.
c. The MPS is the ratio of the change in saving to the change in disposable income.
d. If MPC equals 0.80, autonomous consumption equals $400, and disposable income equals
$600, then consumption equals $880.
105. If total production (TP) is greater than total expenditures (TE), it follows that
a. producers have produced more than individuals buy.
b. optimum inventory levels rise.
c. firms have underproduced.
d. actual inventory levels unexpectedly rise.
e. a and d
106. If total production (TP) is less than total expenditures (TE), it follows that
a. optimum inventory levels fall.
b. firms have underproduced.
c. firms increase the quantity of goods they produce.
d. b and c
e. a, b, and c
107. Inventory levels unexpectedly rise and firms cutback on production. Which of the following is
consistent with these two occurrences?
a. TP is greater than TE.
b. TP is less than TE.
c. TP is equal to TE.
d. TP is equal to TE minus the rise in inventories above the optimum inventory level.
108. Inventory levels unexpectedly fall and firms increase the quantity of goods and services they produce.
Which of the following is consistent with these two occurrences?
a. TP is greater than TE.
b. TP is less than TE.
c. TE is equal to TP minus the rise in inventories above the optimum inventory level.
d. TP is equal to TE.
e. b and c
109. Which of the following statements is true?

a. When TP = TE (total production = total expenditures), the economy is necessarily
producing Natural Real GDP.
b. When TP is greater than TE, inventory levels unexpectedly fall.
c. When TE is greater than TP, inventory levels unexpectedly rise.
d. b and c
110. Government purchases rise by $100 billion and the MPC is equal 0.75. Assuming that idle resources
exist at each expenditure round, and the multiplier is operative, the change in Real GDP equals
a. $40 billion.
b. $75 billion.
c. $400 billion.
d. $750 billion.
e. $250 billion.
NOT: New
111. Which of the following is true?

a. If MPC = 0.50, then the multiplier is 2.00.
b. If MPC = 0.82, then the multiplier is 1.25.
c. If MPS = 0.35, then the multiplier is 2.86.
d. If MPC = 0.97, then the multiplier is 3.33.
e. a and c
112. The economy is in equilibrium, TP = TE. Then, autonomous consumption rises. As a result, __________
rises, the __________ curve shifts __________, inventory levels unexpectedly __________, and
business firms __________ the quantity of goods and services they produce.
a. consumption; TE; downward; fall; increase
b. consumption; TE; upward; fall; increase
c. consumption; TE; upward; rise; decrease
d. investment; TE; upward; fall; increase
e. investment; TP; leftward; fall; increase
113. The economy is in equilibrium, TP = TE. Then, net exports fall. As a result, the __________ curve shifts
__________, inventory levels unexpectedly __________, and business firms __________ the quantity
of good and services they produce.
a. TE; upward; rise; increase
b. TP; rightward; rise; decrease
c. TE; downward; rise; decrease
d. TE; downward; rise; increase
114. The economy is in equilibrium, TP = TE, and Real GDP is $4,555 billion. The MPC is 0.80, the
multiplier is operative, and idle resources exist at each expenditure round. Government purchases rise by
$10 billion. As a result, the __________ curve shifts __________, inventory levels unexpectedly
__________, business firms ___________ the quantity of goods and services they produce, and Real
GDP __________ by __________.
a. TE; downward; fall; increase; rises; $10 billion.
b. TP; rightward; fall; decrease; falls; $50 billion
c. TE; upward; fall; increase; rises; $50 billion
d. TE; downward; rise; increase; rises, $50 billion
multiplier is operative, and idle resources exist at each expenditure round. Government purchases fall by
$17 billion. As a result, the TE curve shifts __________, inventory levels unexpectedly __________,
business firms __________ the quantity of goods and services they produce, and Real GDP __________
by __________.
a. downward; rise; decrease; falls; approximately $56.7 billion
b. downward; fall; increase; falls; approximately $56.7 billion
c. upward; rise; decrease; falls; $17 billion
d. upward; fall; decrease; rises; $17 billion
e. downward; rise; decrease; falls; approximately $11.9 billion
multiplier is operative, and idle resources exist at each expenditure round. Autonomous investment
spending rises by $13 billion. As a result, the __________ curve shifts __________, inventory levels
unexpectedly __________, business firms __________ the quantity of goods and services they produce,
and Real GDP __________ by __________.
a. TE, downward, rise, increase, rises, $32.5 billion
b. TE, upward, fall, increase, rises, $101.5 billion
c. TE, upward, fall, decrease, rises, $32.5 billion
d. TE, upward, fall, increase, rises, $32.5 billion
e. TP, upward, fall, increase, rises, $101.5 billion
117. The answer is: "It is sometimes in the best interest of business firms to pay their employees
higher-than-equilibrium wage rates." What is the question?
a. What do efficiency wage models imply?
b. What do classical economists say?
c. What is the central tenet of Say's law?
d. What did John Maynard Keynes say was the reason for inflexible wages?
118. If consumption is greater than disposable income, it follows that

a. interest rates are rising.
b. the budget deficit is shrinking.
c. saving is negative.
d. the multiplier is inoperative.
119. The change in disposable income is $200 and the change in saving is $50.What is the marginal
propensity to consume (MPC)?
a. 0.25
b. 0.50
c. 0.66
d. 0.75
e. There is not enough information to answer the question.
120. Autonomous spending rises by $10 billion and Real GDP rises by $50 billion. What does the marginal
propensity to save equal?
a. 0.10
b. 0.20
c. 0.80
d. 0.90
e. 0.50
NOT: New
121. There are no idle resources, the multiplier is operative, and autonomous spending rises. It follows that
a. Real GDP will not increase.
b. Real GDP will rise.
c. prices will rise.
d. a and c
e. a, b, and c
ANS: D PTS: 1 DIF: Difficulty: Easy
122. The answer is: 1/(1 - MPC). What is the question?

a. What is the marginal propensity to save?
b. What is the efficiency wage model?
c. What does consumption equal if the economy is in equilibrium?
d. What is the multiplier?
e. What does disposable income equal if the economy is in equilibrium?
123. Which of the following statements would Keynes be most likely to agree with?
a. Saving is more responsive to changes in interest rates than to changes in income.
b. Say's law holds in both a barter and money economy.
c. The internal structure of the economy is not always competitive enough to allow prices to
fall.
d. Investment is exclusively dependent upon the interest rate.
multiplier is operative, and idle resources exist at each expenditure round. Autonomous investment
spending falls by $10 billion. As a result, the TE curve shifts __________, inventory levels unexpectedly
__________, business firms __________ the quantity of goods and services they produce, and Real
GDP __________ by __________.
a. downward; rise; decrease; falls; $7.5 billion
b. downward; fall; increase; rises; $40 billion
c. downward; rise; decrease; falls; $40 billion
d. upward; rise; decrease; falls; $40 billion
e. downward; fall; decrease; falls; $7.5 billion
125. The economy is in equilibrium, TP = TE, and Real GDP is $500 billion. The MPC is 0.95, the multiplier
is operative, and idle resources exist at each expenditure round. Autonomous investment spending rises
by $4 billion. As a result, the TE curve shifts __________, inventory levels unexpectedly __________,
business firms __________ the quantity of goods and services they produce, and Real GDP __________
by __________.
a. upward; fall; increase; rises; $3.8 billion
b. upward; fall; increase; rises; $8 billion
c. downward; rise; decrease; falls; $80 billion
d. upward; fall; increase; rises; $80 billion
e. downward; fall; decrease; falls; $3.8 billion
126. If autonomous consumption rises, the TE curve shifts __________, the marginal propensity to consume
__________, and the TP curve __________.
a. upward; rises; shifts downward
b. upward; remains unchanged; remains unchanged
c. downward; rises; remains unchanged
d. upward; remains unchanged; shifts downward
127. In the Keynesian analysis of changes from one Real GDP level to another, which of the following plays
a critical role?
a. changes in prices
b. the relationship between optimum inventory levels and current inventory levels
c. the long-run aggregate supply (LRAS) curve
d. the relationship between total expenditures (TE) and the aggregate demand (AD) curve
128. The Keynesian aggregate supply curve is

a. vertical.
b. upward sloping.
c. horizontal until Natural Real GDP (QN) and vertical at QN.
d. sometimes upward sloping and sometimes horizontal.
e. downward sloping.
129. In the simple Keynesian model, an increase in aggregate demand leads to an increase in
a. Real GDP and the price level.
b. the price level and no change in Real GDP for levels of Real GDP below Natural Real GDP.
c. the price level and a decrease in Real GDP.
d. Real GDP and no change in the price level for levels of Real GDP below Natural Real GDP.
130. According to Keynes, the private sector (by itself)

a. can always move the economy out of a recessionary gap.
b. cannot always move the economy out of a recessionary gap.
c. can never move the economy out of a recessionary gap.
d. can only move the economy out of a recessionary gap if the SRAS curve drops.
e. can only move the economy out of a recessionary gap if the SRAS curve rises.
131. Given that the economy is operating in the horizontal section of the aggregate supply curve in the simple
Keynesian model, an increase in autonomous spending will ____________________ (assuming that the
economy remains in the horizontal section of the aggregate supply curve).
a. increase Real GDP and raise the price level
b. decrease Real GDP and raise the price level
c. increase Real GDP and leave the price level unchanged
d. increase Real GDP and lower the price level
132. Suppose the multiplier is 4. Ceteris paribus, a change in autonomous spending will change Real GDP
more if the aggregate supply curve is __________ than if it is __________.
a. horizontal; upward sloping
b. upward sloping; horizontal
c. upward sloping; downward sloping
d. downward sloping; upward sloping
133. John Maynard Keynes was a very famous economist from

a. the United States.
b. England.
c. Germany.
d. Ireland.
134. The more nearly horizontal the aggregate supply curve, the
a. greater the change in Real GDP for a given change in autonomous spending.
b. smaller the change in Real GDP for a given change in autonomous spending.
c. larger the multiplier.
d. smaller the multiplier.
e. a and c
135. In the simple Keynesian model, there are three simplifying assumptions. One of these assumptions is:
a. no consumption
b. no investment
c. no exports or imports
d. a and b
e. a, b, and c
136. In the simple Keynesian model, there are three simplifying assumptions. Among these assumptions is:
a. the price level is flexible
b. no foreign sector
c. the price level is constant until the economy reaches its full-employment level
d. the money supply always rises
e. b and c
Exhibit 10-6
137. Refer to Exhibit 10-6. Which of the following is consistent with the economy producing Q2?
a. Total expenditures (TE) is less than total production (TP).
b. Firms are currently holding their optimum inventory levels.
c. Autonomous spending is greater than zero.
d. Total expenditures (TE) are equal to total production (TP).
138. Refer to Exhibit 10-6. If government purchases decrease, it follows that

a. the TE curve will shift upward, possibly passing through point 2.
b. the TE curve will shift downward, possibly passing through point 3.
c. the TE curve will not change but the economy will move from point 1 to point 3.
d. the TE curve will not change but the economy will move from point 1 to point 2.
e. At the new equilibrium position, Real GDP will necessarily be Q3.
139. Refer to Exhibit 10-6. If investment increases, it follows that

a. the TE curve will shift upward, possibly passing through point 2.
b. the TE curve will shift downward, possibly passing through point 3.
c. the TE curve will not change but the economy will move from point 1 to point 3.
d. the TE curve will not change but the economy will move from point 1 to point 2.
e. At the new equilibrium position, Real GDP will necessarily be Q1.
140. Refer to Exhibit 10-6. If total production (TP) is greater than total expenditures (TE), the economy is
currently producing a level of Real GDP that is
a. equal to or lower than Q3.
b. equal to or greater than Q3.
c. less than Q2.
d. between Q2 and Q1.
e. greater than Q3.
141. John Maynard Keynes was the son of

a. one of the first female students to attend Cambridge University.
b. Russian ballerina Lydia Lopokova.
c. the mayor of London.
d. an eminent economist.
e. a and d
MSC: Economics 24/7
142. If Keynes’s theory is correct, wage rates may be _______________ in a _____________ direction
which means that the __________ curve will not shift to the __________ to remove the economy from a
recessionary gap as it would in a self-regulating economy.
a. inflexible; downward; AD; right
b. flexible; upward; SRAS; right
c. flexible; downward; AD; right
d. inflexible; upward; SRAS; left
e. inflexible; downward; SRAS; right
ANS: E PTS: 1 DIF: Difficulty: Challenging
143. Most economists think that the Keynesian position is that

a. the wage rate will never fall and the price level will never adjust downward if the economy
is in a recessionary gap.
b. the time required before wages and prices adjust downward is short enough for the economy
to be called self-regulating.
c. the time required before wages and prices adjust downward is long enough for the economy
to exist in a recessionary gap for a long time.
d. the time required before wages and prices adjust downward if the economy is in a
recessionary gap is rather long, but short enough for the economy to be considered
self-regulating.
144. Which of the following is a characteristic of consumption according to Keynes?

a. consumption depends on disposable income
b. consumption and disposable income have a direct relationship
c. when disposable income changes, consumption changes by less
d. a and c
e. a, b, and c
Exhibit 10-7
AS
Price Level
AD 2
AD 1
AD 4
AD 3
Q Real GDP
145. Refer to Exhibit 10-7. If autonomous consumption increases, which of the following is possible?
a. The AD curve will shift rightward from AD1 to AD2, the price level will remain constant,
and Real GDP will rise.
b. The AD curve will shift leftward from AD4 to AD3, the price level will fall, and Real GDP
will remain constant.
c. The AD curve will shift rightward from AD3 to AD4, the price level will remain constant,
and Real GDP will rise.
d. The AD curve will shift rightward from AD1 to AD2, the price level will rise, and Real GDP
will remain constant.
146. Refer to Exhibit 10-7. If investment decreases, which of the following is possible?
a. The AD curve shifts leftward from AD2 to AD1, the price level falls, and Real GDP remains
constant.
b. The AD curve shifts leftward from AD4 to AD3, the price level falls, and Real GDP remains
constant.
c. The AD curve shifts rightward from AD1 to AD2, the price level remains constant, and Real
GDP rises.
d. The AD curve shifts rightward from AD3 to AD4, the price level rises, and Real GDP
remains constant.
e. c and d
147. Refer to Exhibit 10-7. If government purchases decrease, which of the following is possible?
a. The AD curve shifts leftward from AD2 to AD1, the price level remains constant, and Real
GDP falls.
b. The AD curve shifts leftward from AD4 to AD3, the price level falls, and Real GDP remains
constant.
c. The AD curve shifts rightward from AD1 to AD2, the price level remains constant, and Real
GDP rises.
d. The AD curve shifts rightward from AD3 to AD4, the price level rises, and Real GDP
remains constant.
e. a and b
ANS: E PTS: 1 DIF: Difficulty: Challenging
148. In the TE-TP framework, total production

a. always equals total expenditures.
b. equals Real GDP.
c. is always greater than total expenditures.
d. is always less than total expenditures.
151. Here is a consumption function: C = C0 + MPC(Yd). If C0 = $300, then we know that

a. if Yd rises by $1, then Co rises by $1.
b. if Yd rises by $1, then C rises by $300.
c. as C0 rises by $15, C rises by $15.
d. as C0 rises by $15, Yd rises by $15.
152. Here is a consumption function: C = C0 + MPC(Yd). If consumption is $2,000, MPC =0.75, and
disposable income is $2,000, what does autonomous consumption equal?
a. $950
b. $3,500
c. $500
d. $4,500
153. John Maynard Keynes wrote which of the following?
a. Das Kapital
b. The Scope and Method of Political Economy
c. Wealth of Nations
d. The General Theory of Employment, Interest and Money
e. all of the above
Exhibit 10-8
Disposable
Income Consumption
$0 $300
500 675
1,000 1,050
1,500 1,425
2,000 1,800
2,500 2,175
3,000 2,550
154. Refer to Exhibit 10-8. The marginal propensity to consume (MPC) is

a. 0.90.
b. 0.10.
c. 0.80.
d. 0.95.
e. 0.75.
NOT: New
155. Refer to Exhibit 10-8. The marginal propensity to save (MPS) is

a. 0.90.
b. 0.10.
c. 0.75.
d. 0.25.
e. 4.00.
NOT: New
156. Refer to Exhibit 10-8. The multiplier is

a. 0.90.
b. 10.00.
c. 0.10.
d. 4.00.
e. 0.75.
NOT: New
157. Refer to Exhibit 10-8. The consumption function is

a. C = 0.75(Yd).
b. C = $3,000 + 0.90(Yd).
c. C = $300 + 0.25 (Yd).
d. C = $300 + 0.75(Yd).
NOT: New
a. $1,800.
b. $2,100.
c. $200.
d. -$200.
NOT: New
159. Refer to Exhibit 10-8. Autonomous consumption (Co) is equal to

a. $3
b. $30
c. $300.
d. $3,000.
160. Refer to Exhibit 10-8. When disposable income equals $500, saving equals
a. $125.
b. $500.
c. $175.
d. -$175.
NOT: New
Exhibit 10-9
Marginal Propensity to Marginal Propensity to
Consume (MPC) Save (MPS) Multiplier (m)
0.92 (A) (B)
(C) (D) 10
0.85 (E) (F)
(G) 0.20 (H)
161. Refer to Exhibit 10-9. What is the value of the marginal propensity to save (MPS) that would correctly
fill in blank (A) and the multiplier that would correctly fill in blank (B)?
a. 0.20; 5
b. 0.08; 8
c. 0.08; 12.5
d. 0.05; 0.95
NOT: New
162. Refer to Exhibit 10-9. What is the value of the marginal propensity to consume (MPC) that would
correctly fill in blank (C) and the marginal propensity to save (MPS) that would correctly fill in blank
(D)?
a. 0.90; 0.10
b. 0.10; 10
c. 0.90; 9
d. 0.01; 100
NOT: New
163. Refer to Exhibit 10-9. What is the value of the marginal propensity to save (MPS) that would correctly
fill in blank (E) and the multiplier that would correctly fill in blank (F)?
a. 0.012; 0.83
b. 0.12; 88
c. 0.15; 15
d. 0.15; 6.67
NOT: New
164. Refer to Exhibit 10-9. What is the value of the marginal propensity to consume (MPC) that would
correctly fill in blank (G) and the value of the multiplier that would correctly fill in blank (H)?
a. 0.80; 20
b. 0.80; 5
c. 0.20; 0.80
d. 0.50; 0.50
e. There is not enough information given to answer this question.
165. Which of the following is a basic point that Keynes made about consumption?
a. Consumption and disposal income are inversely related.
b. When disposable income changes, consumption changes by a greater amount.
c. Consumption is dependent upon disposable income.
d. b and c
e. all of the above
166. In the simple Keynesian model, a rightward shift in the aggregate demand curve __________ result in a
change in the price level when the economy is in the horizontal segment of the AS curve and
___________ result in a change in the price level if the economy is in the vertical segment of the AS
curve.
a. will not; will
b. will not; will not
c. will; will not
d. will; will
NOT: New
167. Economist Brown believes that changes in aggregate demand affect only the price level, and economist
Black believes that changes in aggregate demand affect only Real GDP. What does the aggregate
supply (AS) curve look like for each economist?
a. For economist Brown the AS curve is vertical and for economist Black the AS curve is
horizontal.
b. For economist Brown the AS curve is horizontal and for economist Black the AS curve is
vertical.
c. For economist Brown the AS curve is upward sloping and for economist Black the AS curve
is downward sloping.
d. For economist Brown the AS curve is downward sloping and for economist Black the AS
curve is upward sloping.
NOT: New
TRUE/FALSE
1. Keynes believed that saving is more responsive to changes in income than to changes in interest rates.
ANS: T PTS: 1 DIF: Difficulty: Moderate

2. The work of John Maynard Keynes led to a major revolution in economic thought.
ANS: T PTS: 1 DIF: Difficulty: Easy

3. According to Keynes, the economy is inherently unstable and may get stuck in a recessionary gap.

4. One similarity between the beliefs of the classical economists and Keynes is that increased saving would
necessarily stimulate an equal amount of increased investment spending.
ANS: F PTS: 1 DIF: Difficulty: Moderate

5. Keynes asserted that investment is more responsive to business expectations, technological changes and
innovation, than to changes in interest rates.

6. In Keynes' view, labor unions would resist wage cuts, but individual employees would go along with
wage cuts initiated by his/her employer.

7. Classical economists used efficiency wage models to support their belief in a self-regulating economy.

8. Efficiency wage models imply that workers are more productive when they are paid a higher wage, as
compared to when they are paid a lower wage.

9. A simple Keynesian model is representative of a closed economy, with no foreign sector.

10. The marginal propensity to consume (MPC) refers to the proportion of disposable income that is spent
on consumption.
ANS: F PTS: 1 DIF: Difficulty: Challenging

11. A consumption function is a statement that shows the relationship between interest rates and
consumption.

12. An increase in autonomous consumption, an increase in disposable income, or a decrease in the marginal
propensity to consume can all increase consumption.

LOC: DISC: Understanding and applying economic models KEY: Bloom's: Disposable Income
13. When total expenditure (TE) exceeds total production (TP), inventory levels rise unexpectedly, which
sends a signal to firms that they have overproduced, so they cut back on production.

14. The part of consumption that is dependent on disposable income is called autonomous consumption.

15. The marginal propensity to save (MPS) can be found using the equation: (1 - MPC).

16. A change in autonomous spending leads to a greater change in Real GDP through the multiplier process.

17. In reality, idle resources must exist in the economy in order for the multiplier process to lead to an
increase in Real GDP.

18. In a simple Keynesian model, the aggregate supply curve is upward sloping.
ANS: F PTS: 1 DIF: Difficulty: Easy

19. Many economists argue that the labor market may take a long time for wages to adjust to new
equilibrium level.

20. In the simple Keynesian model, the aggregate supply curve has a horizontal segment and a vertical
segment at full-employment.

21. The economy can be in equilibrium and in a recessionary gap simultaneously.

22. A decline in housing prices can help to push the economy into a recessionary gap.

MSC: Economics 24/7
ESSAY
1. Explain the sequence of events that occurs in the economy once total production (TP) is less than total
expenditure (TE).
ANS:
If TP is less than TE, it indicates that businesses have produced too little relative to what the three sectors
of the economy want to buy. The difference between TP and TE would result in an unexpected fall in
inventories. Falling inventories send a signal to firms that they have underproduced, so they will
increase the quantity of goods they produce. The rise in production causes Real GDP to increase and the
levels of TP and TE will move closer together. This cycle will continue until TE and TP are equal.
PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

2. Discuss how the Great Depression contributed to the development of Keynesian economics.
ANS:
During the Great Depression, high levels of unemployment and contracting Real GDP plagued many
countries around the world. The classical assertion in a self-regulating economy, one that could heal
itself of its economic ills, was not working out. This led Keynes and his followers to conclude that
laissez-faire was not a viable policy stance, and that the economy was inherently unstable.

3. Explain the process by which a change in autonomous spending can lead to an even greater change in
Real GDP.
ANS:
When autonomous spending increases, the multiplier process causes Real GDP to grow by some
multiple of the initial increase in spending. This occurs because an increase in spending generates an
equal increase in income. As income increases, another round of spending will be generated (MPC 
increase in spending), which will lead to yet another increase in income. This spending-income cycle
will continue until the dollar amount left to spend becomes very tiny. Theoretically, the resulting
change in Real GDP is equal to [1/(1-MPC)] times the initial change in spending.

4. What is the general format of the consumption function? Explain what each term means and use the
consumption function to explain the three different ways that consumption can increase.
ANS:
The general consumption formula is: C = Co + MPC(Yd). Co is autonomous consumption, which is the
part of consumption that is independent of the level of income. It does not change as disposable income
changes. MPC is the marginal propensity to consume and it represents the portion of a change in income
that is spent. Yd is the symbol for disposable income. This equation shows that consumption can change
as a result of a change in autonomous consumption, a change in the marginal propensity to consume, or
a change in disposable income. Consumption will rise when any one of these three variables rises.
PTS: 1 DIF: Difficulty: Challenging NAT: BUSPROG: Analytic

5. Describe Keynes' criticism of Say's law in a money economy.
ANS:
In order for Say's law to hold in a money economy, any decrease in saving would have to be offset by an
equal increase in investment. According to the Classical economists, this would happen through changes
in interest rates. Keynes disagreed with this view and pointed out that added saving would not
necessarily lead to an equal amount of added investment. Keynes asserted that people save and invest for
a variety of reasons, and not on one single variable such as interest rates. According to Keynes, saving is
more responsive to changes in income than to changes in the interest rate, and investment is more
responsive to change in technology and business expectations than to changes in interest rate.

6. Explain how the Keynesian view differs from the classical view with respect to saving. Explain further
how the two views differ with respect to investment.
ANS:
Classical economists believed that the amount of money saved and interest rates are directly related.
Therefore, savers would save more at higher interest rates than they would at lower interest rates. The
Keynesian view of saving is that savers may not necessarily save more at higher interest rates or save
less at lower interest rates. If savers have a given targeted amount that they are saving towards, a higher
interest rate will mean that they can actually save a smaller portion of their income to achieve that goal.
Keynes held that saving is more responsive to income than it is to the interest rate.
The classical view of investment is that the amount invested is inversely related to interest rates.
Therefore, businesses invest more at lower interest rates than they would at lower interest rates. The
Keynesian view of investment is that the interest rate is not the only factor important in determining
investment. Keynes held that other variables, such as business expectations, are also important
determining factors in determining investment. If businesses are pessimistic about the future then they
are unlikely to increase their level of investment, even if interest rates are relatively low.

7. What type of relationship exists between the marginal propensity to consume (MPC) and the multiplier?
Explain why this relationship exists.
ANS:
The MPC and the multiplier have a direct relationship. This occurs because the MPC measures the
portion of a change in income that is spent, and as more of each additional dollar of income is spent a
greater change in Real GDP occurs as a result. If people are reluctant to spend a change in their income
(indicating a relatively low MPC), less overall spending would occur and fewer new goods and services
would need to be produced.

8. Using the concept of the multiplier, explain in detail how college students flocking to beach towns for
spring break can positively impact the beach towns’ economies.
ANS:
College students on spring break will spend money on lodging, food and drink, souvenirs, and so on.
From the perspective of the beach town, this money represents autonomous spending and an increase in
income. In turn, the beach town residents will spend a portion of this increase in income, which
generates additional income for others, and so on and so on. Ultimately, the beach town economy can
grow by some multiple of the additional spending done by the college students.

MSC: Economics 24/7
9. As portrayed in terms of total expenditures (TE) and total production (TP), discuss at least three
assumptions that sum up the workings of the simple Keynesian model.
ANS:
The simple Keynesian model can be summarized as follows: (1) The price level is constant until Natural
Real GDP is reached. (2) If C, I, or G changes, the TE curve will shift. (3) The economy could be in
equilibrium and in a recessionary gap simultaneously. (4) The private sector may not be able to remove
itself from a recessionary gap. (5) The government may have to intervene to help push the economy so
that it moves out of a recessionary gap and to its Natural Real GDP level.

10. Describe the three basic points that Keynes made regarding consumption. Briefly explain why
consumption was such a main concern in the Keynesian model.
ANS:
The three basic points that Keynes made about consumption are: (1) Consumption depends on
disposable income, (2) Consumption and disposable income are directly related, and (3) any change in
income will be greater than any resulting change in consumption. Consumption was a major concern
for Keynes because it makes up the largest portion of total spending.

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Desserts
Dessert adds a touch that gives a good dinner its final, satisfying
note.
Before using the dessert recipes in this bulletin, refer to the section
on ingredients and measurements (p. 16).
Cake recipes in this publication generally need to be adapted for
use in high-altitude areas. Write to your State Experiment Station or
contact your county extension agent for information on baking cakes
in your area.
For pies and cakes, use pans of the size specified.
To grease pans for cakes, coat lightly with unsalted fat or oil. Then
sprinkle lightly with a little flour. Tip pan from side to side to coat
evenly; then shake out excess flour.
In recipes that call for greased and floured cakepans, you may use
a wax paper lining if you prefer. Cut wax paper to fit the bottom of the
pan. Then grease the paper lightly.
Pastry
8- or 9-inch pastry shell
1 cup flour
½ teaspoon salt
⅓ cup shortening
About 2 tablespoons cold water
Mix flour and salt thoroughly. Mix in fat only until mixture is
crumbly.
Add a little water at a time, blending lightly. Dough should be just
moist enough to cling together when pressed.
Shape dough into a ball. Roll out on a lightly floured surface or
between two sheets of waxed paper. Fit carefully into piepan. Lift
edges and smooth out air bubbles. For baked pastry shell, trim
pastry, leaving about 1 inch around the edge. Fold edge under and
shape into an upright rim.
Prick bottom and sides well with a fork. Bake at 450° F. (very hot
oven) 12 to 15 minutes, or until golden brown.
Variation
Two-crust pie.—Double the recipe. Form dough into two balls, one
slightly larger than the other. Roll out larger ball of dough and fit into
piepan. Roll out remaining dough for top crust; make several slits in
crust to let steam escape during baking. Put filling into pastry-lined
pan. Top with second crust. Fold edges of crusts under and press
together to seal. Bake as directed in pie recipe.
Apple pie
8-inch pie, 6 servings
Pastry for 2-crust 8-inch pie (above)
5 cups pared, sliced tart apples
⅔ cup sugar
1 tablespoon cornstarch
½ teaspoon cinnamon
1 or 2 tablespoons butter or margarine, if desired
Prepare unbaked pastry.
Mix dry ingredients lightly with apples in a bowl. Put filling into
pastry-lined pan. Dot with fat, if desired. Top with second crust.
Bake at 400° F. (hot oven) for 40 to 60 minutes, or until filling
bubbles and the crust is golden brown.
Note: If fruit is sweet, decrease amount of sugar; if unusually tart,
increase sugar.
Variations
Blueberry pie.—Use 3 cups fresh blueberries instead of apples.
Omit cinnamon and increase cornstarch to 3 tablespoons. Sprinkle
fruit with 2 tablespoons lemon juice. Bake 50 to 60 minutes.
Cherry pie.—Instead of apples, use 1 can (1 pound) pitted red
sour cherries, water pack. Do not drain. Omit cinnamon. Increase
cornstarch to 2 tablespoons. Add ⅛ teaspoon almond extract and a
few drops of red food coloring, if desired. Bake 40 to 45 minutes.
Peach pie.—Use 3 cups fresh sliced peaches instead of apples.
Use only ¼ teaspoon cinnamon. Bake 40 to 50 minutes.
Vanilla cream pie

1 8-inch pastry shell (p. 64)
3 tablespoons cornstarch
¼ cup sugar
½ teaspoon salt
2 cups milk
2 egg yolks, beaten
2 tablespoons butter or margarine
1 teaspoon vanilla
½ cup whipping cream
1 tablespoon confectioner’s sugar
Prepare, bake, and cool pastry shell.
Mix cornstarch, sugar, and salt in heavy saucepan. Gradually stir
in milk.
Cook over moderate heat, stirring constantly, until thickened.
Simmer 1 minute longer.
Stir a little of the hot mixture into egg yolks; then stir yolks into
remaining hot mixture. Cook 1 minute longer, stirring constantly. Stir
in fat and vanilla.
Set saucepan in cold water to cool. Stir frequently. Change water
occasionally.
Pour filling into pastry shell. Chill thoroughly.
Before serving, whip cream until stiff and beat in confectioner’s
sugar. Spread over pie.
Notes: Use only clean, sound-shelled eggs in this recipe.
Use whipped dessert topping instead of whipped cream, if desired.
Variations
Coconut cream pie.—Stir ½ to 1 cup shredded coconut, as
desired, into the hot filling with fat and vanilla.
Banana cream pie.—Slice 2 bananas into pie shell before adding
filling.
Chocolate cream pie.—Increase sugar to ¾ cup. Cut 1½ ounces
bitter chocolate into cream filling after adding milk.
Graham cracker crust

8- or 9-inch pie
⅓ cup butter or margarine
2 tablespoons sugar
1¼ cups graham cracker crumbs
Stir fat and sugar together in a saucepan over low heat until fat is
melted. Blend in cracker crumbs. Press evenly into piepan. Chill.
Pecan pie
1 unbaked 9-inch pastry shell (p. 64)
1 cup pecan halves
3 eggs, beaten
½ cup sugar
1 cup dark corn sirup
¼ teaspoon salt
1 teaspoon vanilla
¼ cup melted butter or margarine
Prepare unbaked pastry shell. Spread nuts in bottom of pastry
shell.
Combine remaining ingredients and pour over nuts. Bake at 375°
F. (moderate oven) 30 to 40 minutes, or until the filling appears set
when the pie is gently moved.
Pumpkin pie
1 unbaked 8-inch pastry shell (p. 64)
1 cup canned pumpkin
¼ teaspoon ginger
¼ teaspoon nutmeg
⅛ teaspoon cloves
1 cup milk, half-and-half, or evaporated milk
½ cup sugar
1 egg, slightly beaten
½ teaspoon salt
Prepare unbaked pastry shell.
Blend pumpkin and spices thoroughly. Stir in remaining
ingredients; mix well. Pour into pastry shell.
Bake at 400° F. (hot oven) about 1 hour. Pie is done when a table
knife inserted in center comes out clean. Filling may be soft but will
set on cooling.
Quick meringue-topped pie

1 baked 8-inch pastry shell (p. 64)
1 package (3 to 4 ounces) pudding and pie filling mix, any flavor
2 egg whites
¼ teaspoon salt
¼ cup sugar
Prepare pastry shell.
Make pie filling according to package directions. Cool filling
slightly; then pour into baked pastry shell.
Beat egg whites until foamy. Add salt and beat until soft peaks
form. Add sugar gradually, beating constantly, and continue beating
until stiff peaks form.
Pile meringue on pie while filling is still warm. Bake at 350° F.
(moderate oven) 15 to 20 minutes, or until lightly browned.
Note: Use only clean, sound-shelled eggs in this recipe.
Lemon chiffon pie

1 8-inch graham cracker crust (p. 65) or baked pastry shell (p. 64)
1 tablespoon unflavored gelatin
¼ cup cold water
3 egg yolks
½ cup lemon juice
½ teaspoon grated lemon rind
¾ cup sugar
3 egg whites
¼ teaspoon salt
Prepare graham cracker crust or pastry shell.
Soften gelatin in cold water. Beat egg yolks slightly. Add juice, rind,
and half the sugar. Cook over low heat, stirring constantly, until
mixture begins to thicken, 10 to 15 minutes.
Add gelatin; stir until dissolved. Chill until mixture begins to
thicken.
Beat egg whites until foamy. Add salt and beat until soft peaks
form. Slowly add remaining sugar, beating constantly until stiff. Fold
into chilled mixture.
Pour into crust and chill until firm.
Note: Use only clean, sound-shelled eggs in this recipe.
Variation
Lime chiffon pie.—Use ½ cup lime juice and ½ teaspoon grated
lime rind in place of lemon. Add a few drops of green food coloring to
dissolved gelatin before chilling.
Fruit delight pie

1 9-inch graham cracker crust (p. 65)
1 envelope whipped dessert topping mix
1 package (8 ounces) cream cheese, at room temperature
¼ cup confectioner’s sugar
¼ teaspoon vanilla
½ cup chopped pecans
1 cup canned blueberry, peach, or cherry pie filling
Make graham cracker crust.
Prepare whipped dessert topping according to package directions.
Beat in cream cheese, sugar, and vanilla until smooth. Stir in nuts.
Pour into pie shell. Top with pie filling. Chill at least 3 hours before
serving.
Spiced prune cake

Two 8- or 9-inch layers
1 package spice cake mix (for 2-layer cake)
1¼ cups drained, pitted, and chopped cooked prunes
Prepare cake batter according to package directions. Thoroughly
mix prunes into cake batter. Pour batter into two greased and floured
8- or 9-inch layer cakepans.
Bake according to package directions but increase baking time by
10 minutes. Cool cake a few minutes before removing from the pans.
When cool, frost with creamy white frosting (p. 69).
Velvety white cake

Two 8-inch layers
2 cups cake flour
1¼ cups sugar
1 tablespoon baking powder
1 teaspoon salt
½ cup softened butter or margarine or shortening
1 cup milk
4 egg whites, unbeaten
1 teaspoon vanilla
¼ teaspoon almond extract, if desired
Mix dry ingredients well. Add fat and half of the milk; beat until
creamy. Add remaining milk, egg whites, and flavoring; beat until
creamy.
Pour into two 8-inch greased and floured layer cakepans. Bake at
375° F. (moderate oven) 25 to 30 minutes, or until the cake surface
springs back when touched lightly. Cool cake for a few minutes
before removing from the pans. When cool, frost as desired.
Gingerbread
6 to 9 servings
½ cup shortening
½ cup brown sugar, packed
1 egg
½ cup molasses
1½ cups flour
½ teaspoon salt
¾ teaspoon baking soda
½ teaspoon ginger
½ cup boiling water
Beat shortening and sugar until creamy. Add egg and molasses;
beat well.
Mix dry ingredients thoroughly. Add to molasses mixture
alternately with boiling water. Beat after each addition.
Pour batter into a greased 8- by 8- by 2-inch baking pan. Bake at
350° F. (moderate oven) 35 to 40 minutes. Serve warm.
Upside-down cake
6 servings
½ cup brown sugar, packed
6 drained canned peach halves
6 drained maraschino cherries, halved
12 pecan halves
1 recipe quick coffee cake batter (p. 62)
Melt fat in a 9-inch layer cakepan over low heat. Sprinkle brown
sugar over fat. Arrange fruit and nuts in sugar mixture.
Prepare coffee cake batter and pour over fruit; spread evenly.
Bake at 350° F. (moderate oven) 30 to 40 minutes.
Loosen cake from sides of pan and invert on serving plate. Allow
to cool 5 minutes before removing pan.
Variations
Use 12 canned apricot halves or 6 canned pineapple slices or 1
cup of drained canned crushed pineapple for the fruit.
Timesaver
Instead of quick coffee cake batter, use a 1-layer package of cake
mix, prepared by package directions.
Cherry cobbler
6 servings
½ recipe sweet biscuit dough (p. 60)
⅔ cup sugar
2 tablespoons cornstarch
1 can (1 pound) pitted red sour cherries, water pack
⅛ teaspoon almond extract
Few drops red food coloring
1 tablespoon butter or margarine
Make biscuit dough but do not roll out.
Blend sugar and cornstarch in a 1-quart saucepan. Gradually stir
in cherries. Cook over moderate heat until thickened and clear,
stirring constantly. Remove from heat. Add flavoring, food coloring,
and fat. Pour into a 1½-quart casserole.
Drop biscuit dough by spoonfuls onto hot cherry mixture. Bake at
425° F. (hot oven) 15 to 20 minutes, or until filling bubbles and
topping is lightly browned.
Timesaver
Quick cherry cobbler.—Use 1 can (1 pound 5 ounces) cherry pie
filling. Heat to boiling and stir in 1 tablespoon butter or margarine.
For biscuit topping, combine 1 cup packaged biscuit mix and 1
tablespoon sugar. Add ⅓ cup milk and 1 tablespoon melted butter or
margarine; stir until moistened. Drop by spoonfuls onto hot cherry
filling and bake as directed.
Chocolate cake
Two 8-inch layers
1¾ cups cake flour
1⅓ cups sugar
1 teaspoon salt
1 teaspoon baking soda
½ cup softened butter or margarine
1 cup milk
1 teaspoon vanilla
2 eggs
2 or 3 ounces (2 or 3 squares) unsweetened chocolate, melted
Mix dry ingredients well. Add fat and half of the milk; beat until
creamy. Mix in remaining milk, vanilla, and eggs. Add chocolate;
beat until creamy.
Pour into two 8-inch greased and floured layer cake pans. Bake at
350° F. (moderate oven) 30 to 35 minutes, or until the cake surface
springs back when touched lightly. Cool cake a few minutes before
removing from the pans. When cool, frost with creamy chocolate
frosting (this page).
Note: For a loaf cake, use a greased and floured 9- by 12-inch
cakepan. Bake about 40 minutes.
Creamy white frosting

For 8-inch layer cake or 9- by 12-inch loaf cake
About 2½ cups confectioner’s sugar
⅓ cup softened butter or margarine
3 tablespoons milk
1 teaspoon vanilla
Beat about 2 cups of the sugar with all other ingredients until
frosting is creamy and smooth. Beat in enough of the remaining
sugar for a frosting that will spread evenly. Spread on cooled cake.
Variation
Creamy chocolate frosting.—Mix in 1 or 2 ounces (1 or 2 squares)
of melted chocolate. Or increase milk to ¼ cup and use ⅓ cup
cocoa. Beat until creamy and smooth.
Caramel-nut frosting
For 8-inch layer cake or 9- by 12-inch loaf cake
½ cup butter or margarine
1 cup brown sugar, packed
¼ cup milk
2 cups confectioner’s sugar
⅔ cup finely chopped pecans or walnuts
½ teaspoon vanilla
Nut halves, as desired
Combine, fat, brown sugar, and milk. Cook over medium heat,
stirring constantly, only until mixture boils and sugar is dissolved.
Cool slightly.
Beat confectioner’s sugar into cooked mixture until frosting
reaches spreading consistency. Add chopped nuts and vanilla; mix
well.
Spread on cooled cake. Garnish with nut halves.
Orange bavarian cream

6 servings
1 tablespoon unflavored gelatin
¼ cup cold water
¾ cup orange juice
2 tablespoons lemon juice
½ teaspoon grated orange rind
⅓ cup sugar
¼ teaspoon salt
1 cup whipping cream
1 cup fresh orange sections, cut in pieces
Soften gelatin in water. Combine fruit juices, orange rind, sugar,
and salt; heat to simmering. Dissolve gelatin in hot mixture. Chill until
mixture begins to thicken.
Whip cream only until stiff. Fold whipped cream and orange
sections into gelatin mixture. Pour into a 1-quart mold and chill until
firm.
Oatmeal cookies
3 to 4 dozen cookies
1 cup flour
1¼ teaspoons baking powder
½ teaspoon baking soda
½ teaspoon salt
½ cup shortening
1 egg
¾ teaspoon vanilla
1½ cups quick-cooking rolled oats
Mix flour, baking powder, soda, and salt. Beat shortening and
sugar until creamy. Beat in egg and vanilla. Blend in flour mixture.
Stir in rolled oats. Chill.
Shape dough into balls about 1 inch in diameter. Place about 2
inches apart on an ungreased baking sheet. Bake at 350° F.
(moderate oven) 10 to 15 minutes.
Remove from baking sheet while warm.
Variations
Raisin-oatmeal cookies.—Add ½ cup raisins with the oats.
Coconut- or nut-oatmeal cookies.—Add ½ cup flaked coconut or ½
cup chopped nuts with the oats.
Orange-oatmeal cookies.—Add 2 tablespoons orange juice and 1
teaspoon grated orange rind to shortening and sugar mixture. Add ½
cup raisins and ½ cup chopped nuts with the oats. Chill dough
thoroughly; drop from teaspoon onto baking sheet.
Peanut butter cookies

1 cup shortening
1 cup peanut butter
1 cup granulated sugar
2 eggs
1 teaspoon vanilla
2½ cups flour
½ teaspoon salt
¾ teaspoon baking soda
½ teaspoon baking powder
Beat shortening and peanut butter until creamy. Gradually add
sugars, beating thoroughly after each addition. Beat in eggs and
vanilla.
Mix remaining ingredients and blend into peanut butter mixture.
Shape dough into balls about 1 inch in diameter. Place about 2
inches apart on an ungreased baking sheet. Flatten each cookie.
Criss-cross top of each cookie with a fork, if desired.
Bake at 375° F. (moderate oven) 10 to 15 minutes.
Variation
Top-hat cookies.—Roll balls of dough in granulated sugar before
placing on baking sheet. Do not flatten. Bake 10 minutes; then
remove from oven and press a milk chocolate candy kiss into center
of each cookie. Return to oven and bake 2 to 5 minutes longer, or
until cookies are done.
Molasses snaps
¾ cup shortening
2 eggs
¼ cup molasses
2¼ cups flour
2 teaspoons baking soda
½ teaspoon salt
½ teaspoon cloves
1 teaspoon cinnamon
1 teaspoon ginger
½ cup chopped nuts, if desired
½ cup raisins, if desired
Beat shortening and sugar until creamy. Beat in eggs and
molasses.
Mix dry ingredients and stir in raisins and nuts, if used. Stir flour
mixture into molasses mixture.
Drop dough from a teaspoon onto a lightly greased baking sheet;
space cookies about 2 inches apart. Bake at 375° F. (moderate
oven) 10 to 12 minutes, or until set but not hard.
Chocolate sparkles
1 cup softened butter or margarine
1¼ cups sugar
2 eggs
2 ounces (2 squares) unsweetened chocolate, melted
½ teaspoon vanilla
2⅔ cups flour
2 teaspoons cream of tartar
1 teaspoon baking soda
½ teaspoon salt
¼ cup sugar
Beat fat and 1¼ cups sugar until creamy. Beat in eggs; add melted
chocolate and vanilla.
Mix flour, cream of tartar, soda, and salt. Stir into chocolate
mixture; blend well. Chill dough.
Shape dough into balls about 1 inch in diameter. Roll balls in ¼
cup sugar and place about 2 inches apart on an ungreased baking
sheet. Bake at 400° F. (hot oven) 8 to 10 minutes.
Variations
Cinnamon-sugar cookies.—Omit chocolate. Roll balls of dough in
a mixture of ¼ cup sugar and 1 tablespoon cinnamon; bake as
directed.
Chocolate chip cookies.—In place of 1½ cups granulated sugar,
use ½ cup granulated sugar and 1 cup brown sugar. Beat sugars
with butter or margarine. Omit the chocolate. Stir ⅔ cup chopped
nuts and 1 package (12 ounces) chocolate chips into the dough.
Drop dough from a teaspoon onto an ungreased baking sheet and
bake as directed.
Apple crisp
6 servings
2 tablespoons granulated sugar
¼ teaspoon cinnamon
4 cups pared, sliced tart apples
¼ cup water
½ cup flour
⅛ teaspoon salt
¼ teaspoon cinnamon
¼ teaspoon nutmeg
⅓ cup brown sugar, packed
3 tablespoons softened butter or margarine
Mix granulated sugar with ¼ teaspoon cinnamon; sprinkle over
apples and mix lightly. Spread apples in a greased 8- by 8- by 2-inch
baking pan. Sprinkle with the water.
Blend flour, salt, cinnamon, nutmeg, and brown sugar. Mix in fat to
make a crumbly mixture. Spread over apples. Bake uncovered at
350° F. (moderate oven) 40 minutes or until lightly browned and
apples are tender.
Baked apples
6 servings
6 large baking apples
6 tablespoons sugar
Cinnamon, as desired
½ cup water
Wash and core apples. Pare apples one-third of the way down or
slit the skin around the apple about half-way down.
Place apples in a baking dish. Put sugar and butter or margarine
in the center of each apple. Sprinkle with cinnamon. Pour the water
around apples to prevent sticking.
Bake uncovered at 400° F. (hot oven) until tender, 45 minutes to 1
hour.
Variation
Cranberry-baked apples.—Omit the sugar, fat, and cinnamon.
Combine ¾ cup chopped raw cranberries, ½ cup sugar, and 3
tablespoons chopped nuts. Stuff apples with this mixture before
baking.
Brownies
16 brownies
2 ounces (2 squares) unsweetened chocolate
⅓ cup shortening or oil
1 cup sugar
2 eggs, slightly beaten
1 teaspoon vanilla
⅔ cup flour
½ teaspoon baking powder
½ teaspoon salt
½ cup chopped nuts
Melt chocolate and fat together over low heat. Cool slightly. Mix
sugar with eggs.
Stir chocolate mixture into eggs gradually. Add vanilla.
Mix dry ingredients, stir in nuts, and add to chocolate mixture.
Spread batter in a greased 8-inch square baking pan. Bake at
350° F. (moderate oven) 25 to 30 minutes or until crust is shiny and
brownies begin to shrink from pan. Cool in pan. Cut into 2-inch
squares.
Variation
Chewy brownies.—Follow directions above, but omit baking
powder.
Baked custard
6 servings
4 eggs, slightly beaten
⅓ cup sugar
¼ teaspoon salt
3 cups hot milk
1 teaspoon vanilla
Nutmeg, as desired
Combine eggs, sugar, and salt. Stir in the milk gradually. Add
vanilla.
Pour into custard cups. Sprinkle with nutmeg. Set cups in a pan of
hot water.
Bake at 325° F. (slow oven) 30 to 40 minutes, or until the tip of a
knife inserted in the center comes out clean.
Raisin-nut bread pudding

6 servings
2 cups milk
1 tablespoon butter or margarine
¼ cup brown sugar, packed
1 teaspoon cinnamon
½ teaspoon nutmeg
½ teaspoon vanilla
2 egg yolks, slightly beaten
4 slices bread, cut in 1-inch cubes
½ cup raisins
½ cup slivered almonds
2 egg whites
¼ teaspoon salt
Heat milk. Stir in fat, sugar, cinnamon, nutmeg, and vanilla.
Stir a little of the milk mixture into egg yolks; then stir yolks into
rest of milk mixture. Add bread cubes, raisins, and half the nuts.
Beat egg whites until foamy. Add salt and beat until stiff but not
dry. Fold egg whites into pudding mixture. Pour into greased 1-quart
casserole. Sprinkle top with rest of nuts. Place casserole in pan of
hot water.
Bake at 325° F. (slow oven) 1¼ to 1½ hours, or until the tip of a
knife inserted in the center comes out clean.
Quick ice cream desserts

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Managerial Economics 12th Edition Hirschey Test Bank

1. According to Keynes, what households plan to save

3. If total production is greater than total expenditures,

5. If people buy more than has been produced,

6. When the economy is in equilibrium,

7. When there is economy-wide equilibrium, there is a tendency for

9. If total production is less than total expenditures, then business firms

12. Refer to Exhibit 10-1. At all points on the 45-degree line,

13. Refer to Exhibit 10-1. Equilibrium Real GDP occurs at

14. Refer to Exhibit 10-1. At Q3,

15. Refer to Exhibit 10-1. At Q1,

19. Consumption and disposable income are

22. Refer to Exhibit 10-2. Equilibrium Real GDP occurs at

23. Refer to Exhibit 10-2. At M,

27. Total production

28. When total production is greater than total expenditures,

39. Keynes believed that saving is

40. Keynes believed that investment is

41. Keynes believed that

42. Which of the following statements is false?

51. Here is a consumption function: C = C0 + MPC(Yd). The C0 term is usually defined as

53. Here is a consumption function: C = C0 + MPC(Yd). If C0 = $200, then we know that

56. The larger the marginal propensity to save,

62. When the MPC = 0.9, the multiplier is

64. When the MPC = 0.6, the multiplier is

65. How is the multiplier expressed in terms of the MPS?

67. Keynes argued that

68. Keynes assumed consumption is

73. Refer to Exhibit 10-3. The multiplier is

74. Which of the following is not an aspect of Keynesian economics?

75. If the multiplier is 5, then the MPC must be

79. Refer to Exhibit 10-4. Marginal propensity to consume is equal to

91. The more firms that pay efficiency wages, the

92. According to efficiency wage models, labor productivity depends on

93. Which of the following statements is true?

95. For Say's law to hold in a money economy,

100. Which of the following statements is false?

104. Which of the following statements is false?

109. Which of the following statements is true?

111. Which of the following is true?

118. If consumption is greater than disposable income, it follows that

122. The answer is: 1/(1 - MPC). What is the question?

128. The Keynesian aggregate supply curve is

130. According to Keynes, the private sector (by itself)

133. John Maynard Keynes was a very famous economist from

138. Refer to Exhibit 10-6. If government purchases decrease, it follows that

139. Refer to Exhibit 10-6. If investment increases, it follows that

141. John Maynard Keynes was the son of

143. Most economists think that the Keynesian position is that

144. Which of the following is a characteristic of consumption according to Keynes?

148. In the TE-TP framework, total production

151. Here is a consumption function: C = C0 + MPC(Yd). If C0 = $300, then we know that

154. Refer to Exhibit 10-8. The marginal propensity to consume (MPC) is

155. Refer to Exhibit 10-8. The marginal propensity to save (MPS) is

156. Refer to Exhibit 10-8. The multiplier is

157. Refer to Exhibit 10-8. The consumption function is