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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 answers a. and b. are correct.e. Both answers a. and c. are correct.

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.

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

If the marginal propensity to consume (MPC) is0.80, the value of the spending multiplier is a. 2.b. 5.c. 8.d. 10.

If the value of the marginal propensity to consume (MPC) is 0.50, the value of the spending multiplier is a. .50.b. 1.c. 2.d. 5.

If the equilibrium level of real GDP is $100,000 below the full-employment level of real GDP and the spending multiplier is 4, how much of an increase in autonomous aggregate expenditures (such as government spending) is required to move the equilibrium to the full-employment level of real GDP? a. $400,000.b. $200,000.c. $100,000.d. $25,000.e. $10,000.

Keynes’ criticism of the classical theory was thatthe Great Depression would not correct itself. The multiplier effect would restore an economy to fullemployment 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.

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

According to classical macroeconomic theory, if real GDP is at the full-employment level, then an increase in aggregate demand will result in which of the following changes in equilibrium?a. Real GDP will rise, but the price level will remain constant.b. Real GDP and the price level will both rise.c. Real GDP will remain unchanged but

According to Keynesian theory, if equilibrium real GDP is below the full-employment level, then an increase in aggregate demand will result in which of the following changes in equilibrium? a. Real GDP will rise, but the price level will remain constant.b. Real GDP and the price level will both rise.c. Real GDP will remain unchanged