ECONOMICS II
EXTRA True or False CHAPTER 11
(CLASSROOM PRACTICE)
ANSWERS
1
Crowding out is more likely to occur when aggregate supply is perfectly
elastic.
A)
True
B)
False
Crowding is more likely to occur when aggregate supply is perfectly inelastic. An increase in
government spending will raise prices while GDP remains constant. Therefore, the increase in
spending by the government must directly crowd out private sector spending.
2
Investment is an autonomous expenditure
A)
True
Investment decisions taken now are not influenced by the current level of income.
B)
3
False
The Keynesian explains the behaviour of inflation
A)
True
B)
False
Under the Keynesian Cross approach there is an assumption that prices are constant.
4
The marginal propensity to consume is the level of consumption when income
is zero.
A)
True
B)
False
The MPC (marginal propensity to consume) is the extra consumption generated by 1 unit of
extra income.
5
The marginal propensity to consume can never be equal to the marginal
propensity to save.
A)
True
B)
False
They can both be equal to 0.5
6
Adding investment to the AD curve does not change its slope
A)
True
Adding investment to consumption simply increases autonomous expenditure
by the increased amount of investment.
B)
False
7
In equilibrium, national output and aggregate demand must be equal.
A)
True
For the Keynesian cross approach to modelling equilibrium output, see Figure 11.5
B)
8
False
An increase in the marginal propensity to save increases the multiplier.
A)
True
B)
False
It reduces the multiplier because the multiplier is equal to 1/(1-MPC)=1/MPS.
1
9
An increase in the tax rate reduces the multiplier.
A)
True
Multiplier = 1/(MPS + MPT), where MPT is the marginal propensity to tax.
B)
10
False
Cumulative government debt is larger in Germany than in the UK
A)
True
See Figure 11.9.
B)
False
2