The Ultimate Macroeconomics Quiz

• Senator John F. Kennedy wanted to learn about "the new economics" before he was elected president.
• He recruited economists John Kenneth Galbraith, Seymour Harris, and Paul Samuelson to teach him.
• Kennedy needed to understand policies that could promote economic growth, reduce unemployment, and avoid instability.
• The size of the government relative to the economy increased after WWII, leading to a reduction in business cycle fluctuations.
• Private investment spending is driven by expectations about future post-tax profits.
• The multiplier is a statistic that helps economists understand the impact of changes in investment or government spending on the economy.
• The multiplier is greater than 1 if the additional consumption spending resulting from a temporary increase in income is greater than zero but less than the increase in income.
• The aggregate consumption function depends on current income and has a marginal propensity to consume (MPC) of less than one.
• Only part of an increase in income is consumed, while the rest is saved.
• The MPC varies across households based on their wealth and credit constraints.

1. Consumption closely tracks income for households with little wealth or credit constraints.
2. Households with low wealth smooth consumption very little if their income falls sharply.
3. For rich households, an increase in current income of €1 would raise their consumption by just a few cents.
4. Autonomous consumption refers to consumption that is independent of income.
5. Expectations about future income are included in autonomous consumption.
6. Consumer confidence changed during the financial crisis of 2008, leading to a drop in consumption of consumer durables.
7. Investment is similar to autonomous consumption and can lead to a parallel upward shift in the aggregate demand line.
8. A reduction in investment can lead to a multiplier effect on output and employment.
9. The multiplier effect is larger in an economy with spare capacity and fixed wages.
10. The change in output is equal to the multiplier times the change in investment.
11. The economy's marginal propensity to consume is 0.5.
12. An increase in investment of €1.5 billion triggers successive increases in production.
13. Consumption is the largest component of GDP in most economies.
14. A shift in autonomous consumption can cause a shift in aggregate demand.
15. The Great Depression highlights two ways in which aggregate consumption might fall.
16. Broad wealth includes the household's expected future earnings from employment.
17. Firms have four choices in deciding what to do with their accumulated profits.
18. The interest rate is one of the factors determining whether investment takes place.
19. A lower interest rate raises the number of investment projects for which the expected rate of profit is greater than the interest rate.
20. A change in profit expectations affects investment.

• Investment can be influenced by interest rates and expected post-tax profit.
• Positive supply effects can increase investment, such as a fall in expected input prices or an improvement in property rights.
• Aggregate investment function shows potential investment projects in an economy with many firms.
• Interest rates can also affect household consumption spending and demand for durable consumer goods.
• Aggregate demand is split into household consumption spending, investment, government spending, and net exports.
• Taxes and imports reduce the size of the multiplier in the model.
• Unemployment benefits are an automatic stabilizer in modern economies.
• Fiscal policy can be used to stabilize the economy through government spending or cuts in taxation.
• Keynes argued that government deficit spending can be beneficial in a recession, unlike a household budget deficit.
• The multiplier can be calculated using the aggregate demand equation and output.

Are you ready to test your knowledge of macroeconomics and the multiplier effect? This quiz covers topics such as the relationship between government spending and economic growth, the impact of investment on the economy, and the role of fiscal policy in stabilizing the economy. You'll also explore the concept of the multiplier and learn how it can be used to calculate the impact of changes in investment or government spending on the economy. Whether you're a student of economics or just interested in learning more about the subject, this