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Free CFA-Level-I Exam Braindumps (page: 355)

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In the Keynesian aggregate expenditure model, the larger the marginal propensity to consume,

  1. more consumption expands as the result of a decline in investment.
  2. greater the marginal propensity to save.
  3. the smaller the multiplier.
  4. greater the change in income derived from a given change in private investment.

Answer(s): D

Explanation:

The expenditure multiplier is found by M = 1/(1-MPC). Thus, the larger the MPC the larger the multiplier. The multiplier magnifies changes in aggregate expenditure into larger changes in aggregate output. the larger the multiplier then, the greater the change in income derived from a given change in private investment.



When financing a budget deficit, the government might borrow money from ________.

  1. a central bank
  2. individuals
  3. all of these answers
  4. businesses
  5. foreigners

Answer(s): C

Explanation:

The government can borrow money from the central bank, from private businesses, private citizens and foreigners.



If consumption equals 1,100 when disposable income is 1,200 and increases to 1,400 when disposable income goes to 1,600, what are the marginal propensities to consume and to save?

  1. MPC = 1/5; MPS = 4/5
  2. MPC = 2/3; MPS = 1/3
  3. MPC = 3/4; MPS = 1/4
  4. MPC = 1/3; MPS = 2/3

Answer(s): C

Explanation:

Since the MPC is determined according to the ratio: MPC = additional consumption divided by additional income, the MPC here equals: 300/400 = .75. MPS = 1-MPC so MPS = .25.



Keynesians believe that a discretionary fiscal policy:

  1. is destabilizing due to difficulty in timing and should not be used actively.
  2. is ineffective since people rationally anticipate its future effects.
  3. none of these answers.
  4. is not as effective as the monetary policy in controlling unemployment.

Answer(s): C

Explanation:

Keynesians believe that aggregate demand has a major influence. They maintain that suppliers will produce at a level consistent with anticipated aggregate demand. Hence, to increase economic production when the economy is operating below capacity, Keynesians advocate spurring the demand in the market through the use of an expansionary fiscal policy.






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