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 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.

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

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

The aggregate demand curve is defined as a. the net national product.b. the sum of wages, rent, interest, and profits.c. the real GDP purchased at different possible price levels.d. the total dollar value of household expectations.

When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which, in turn, reduces consumption and investment spending. This effect is called the a. real balance effect.b. interest-rate effect.c. net exports effect.d. substitution effect.

The real balance effect occurs because a higher price level reduces the real value of people’s a. financial assets.b. wages.c. unpaid debt.d. physical investments.

The net exports effect is the inverse relationship between net exports and the__________ of an economy. a. real GDPb. GDP deflatorc. price leveld. consumption spending

In the short run, an increase in the price level causes which of the following a. A rightward shift in the aggregate demand curve.b. A leftward shift in the short-run aggregate supply curve.c. A rightward shift in the short-run aggregate supply curve.d. A movement upward along the short-run aggregate supply curve.

The marginal propensity to save is