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Economics 12th Edition Arnold Test
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Chapter 10—Keynesian Macroeconomics and Economic Instability: A Critique of the
Self-Regulating Economy
MULTIPLE CHOICE
1. According to Keynes, what households plan to save

a. always equals what firms plan to invest.
b. sometimes equals what firms plan to invest.
c. is always greater than what firms plan to invest.
d. is always less than what firms plan to invest.
ANS: B PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic
LOC: DISC: Understanding and applying economic models KEY: Bloom's: Comprehension
2. If households purchase $60,000 worth of consumer goods and firms produce $50,000 worth of consumer
goods, then
a. inventory changes are -$10,000.
b. inventory changes are +$10,000.
c. new capital goods expenditures (by firms) are $10,000.
d. consumer goods expenditures are $10,000.
ANS: A PTS: 1 DIF: Difficulty: Moderate
LOC: DISC: Understanding and applying economic models KEY: Bloom's: Application
3. If total production is greater than total expenditures,

a. there will be an increase in saving.
b. there will be an increase in inventories.
c. firms will then increase production.
d. firms will then increase prices.
4. When total production is greater than total expenditures, __________ is produced than households want
to buy, which leads to __________ in inventory, which signals firms that they have __________, which
causes firms to cut back production.
a. less; decreases; underproduced
b. less; increases; overproduced
c. more; decreases; underproduced
d. more; increases; overproduced
ANS: D PTS: 1 DIF: Difficulty: Moderate
5. If people buy more than has been produced,

a. the economy is in equilibrium.
b. total expenditures are greater than total production.
c. there will be an increase in inventory.
d. there will be a decrease in total output.
ANS: B PTS: 1 DIF: Difficulty: Moderate
6. When the economy is in equilibrium,

a. there are increases in inventory.
b. there are decreases in inventory.
c. total expenditures equal total production.
d. people want to buy more than will be produced.
ANS: C PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic LOC: DISC: Equilibrium
KEY: Bloom's: Comprehension
7. When there is economy-wide equilibrium, there is a tendency for

a. total output to rise.
b. total output to fall.
c. total output to remain unchanged.
d. prices to fall.
e. prices to rise.
8. When total expenditures are greater than total production, __________ is produced than households
want to buy, which leads to __________ in inventory, which signals firms that they have __________,
which causes firms to increase production.
a. less; decreases; underproduced
b. more; increases; underproduced
c. less; increases; underproduced
d. more; decreases; overproduced
9. If total production is less than total expenditures, then business firms

a. have overproduced.
b. will cut back on production.
c. will raise production.
d. will experience increases in inventory.
e. a and d
10. If total production is greater than total expenditures, then business firms
a. have underproduced.
b. will step up production.
c. will lower production.
d. will experience decreases in inventory.
e. a and b
11. The two major curves or lines in the TE-TP diagram are:
a. the total expenditure curve and the 45-degree line.
b. the supply and demand curves.
c. the total expenditures and national income curves.
d. the total production and national income curves.
ANS: A PTS: 1 DIF: Difficulty: Easy
LOC: DISC: Understanding and applying economic models KEY: Bloom's: Knowledge
Exhibit 10-1
12. Refer to Exhibit 10-1. At all points on the 45-degree line,

a. TP = Real GDP.
b. TP > Real GDP.
c. TP < Real GDP.
d. all of the above are possible.
13. Refer to Exhibit 10-1. Equilibrium Real GDP occurs at

a. Q1.
b. Q2.
c. Q3.
d. Q1 and Q3.
e. none of the above
14. Refer to Exhibit 10-1. At Q3,

a. TE > TP, and there are decreases in inventory.
b. TE = TP, and there are no changes in inventory.
c. TP > TE, and there are increases in inventory.
d. TE > TP, and there are increases in inventory.
ANS: C PTS: 1 DIF: Difficulty: Moderate
15. Refer to Exhibit 10-1. At Q1,

a. TE > TP, and there are decreases in inventory.
b. TP > TE, and there are increases in inventory.
c. TE = TP, and there are no changes in inventory.
d. TE > TP, and there are increases in inventory.
16. Refer to Exhibit 10-1. At Q3, there is a tendency for Real GDP to
a. rise.
b. fall.
c. remain unchanged.
d. There is not enough information to answer this question.
a. rise.
b. fall.
a. rise.
b. fall.
19. Consumption and disposable income are

a. indirectly related.
b. directly related.
c. not related.
d. sometimes directly and sometimes indirectly related, depending upon whether consumption
is planned or unplanned.
20. The classical economists believed __________ determined savings, while Keynes said it was
__________.
a. interest rates; income
b. income; investment
c. investment; interest rates
d. interest rates; investment
21. The horizontal investment curve used to derive the TE curve means investment is
a. directly related to Real GDP.
b. indirectly related to Real GDP.
c. independent of Real GDP.
d. sometimes directly and sometimes indirectly related to Real GDP, depending upon whether
it is planned capital or planned inventory investment.
Exhibit 10-2
22. Refer to Exhibit 10-2. Equilibrium Real GDP occurs at

a. $3,000 billion.
b. $1,500 billion.
c. $7,500 billion.
d. $4,000 billion.
e. $4,500 billion.
ANS: E PTS: 1 DIF: Difficulty: Easy
KEY: Bloom's: Application
23. Refer to Exhibit 10-2. At M,

a. TP = TE.
b. TP > TE.
c. TE > TP.
d. the relationship between TP and TE cannot be determined.
24. Refer to Exhibit 10-2. Which of the following is correct about point M?
a. TE is $4,500 billion and TP is only $1,500 billion.
b. TP is $4,500 billion and TE is only $1,500 billion.
c. TE is $7,500 and TP is only $5,500 billion.
d. TP is only $7,500 billion and TE is only $5,500 billion.
e. TE is $3,000 billion and TP is only $1,500 billion.
ANS: E PTS: 1 DIF: Difficulty: Moderate
25. Refer to Exhibit 10-2. If autonomous consumption increases, the TE curve will shift ____________ and
the new level of equilibrium Real GDP will be ___________ than $4,500.
a. downward; greater
b. downward; less
c. upward; less
d. upward; greater
NOT: New
26. Refer to Exhibit 10-2. If autonomous investment decreases, the TE curve will shift ____________ and
the new level of equilibrium Real GDP will be ___________ than $4,500.
a. downward; greater
b. downward; less
c. upward; less
d. upward; greater
NOT: New
27. Total production

a. always equals total expenditures.
b. equals total expenditures in equilibrium.
c. is always greater than total expenditures.
d. is always less than total expenditures.
28. When total production is greater than total expenditures,

a. the economy is in disequilibrium.
b. there are increases in inventory.
c. total output will decrease.
d. all of the above
29. John Maynard Keynes drew many economists ______________ the classical view. The classical view
held that a market economy __________ regulate itself to avoid periods of excessive unemployment.
a. toward; can
b. toward; cannot
c. away from; can
d. away from; cannot
30. In a recessionary gap, the implications of downward wage inflexibility are that there will be
a. further leftward shifts of AD that worsen unemployment.
b. no further leftward shifts of AD, allowing the shifts in SRAS to close the gap.
c. no further leftward shifts of SRAS, allowing the shifts in AD to close the gap.
d. no rightward shifts of SRAS, allowing for persistent high unemployment.
31. The efficiency wage model is an explanation of wage __________ and thus a support for __________
macroeconomics.
a. flexibility; Keynesian
b. flexibility; classical
c. inflexibility; Keynesian
d. inflexibility; classical
32. According to the efficiency wage model, firms tend to pay workers
a. the market-clearing wage that efficiently equates labor supplied and demanded.
b. in excess of the market-clearing wage to provide an incentive for productivity and
efficiency.
c. less than the market-clearing wage to assure themselves a pool of workers ready to replace
workers who quit.
d. less than the market-clearing wage to minimize labor cost per unit of production.
33. The efficiency wage model contains the assumption that labor productivity __________ the wage rate,
so that a firm maximizing its profits __________ pay workers an above-market wage rate.
a. is independent of; may
b. is independent of; will never
c. depends on; may
d. depends on; will never
34. Two economists, Smith and Jones, are discussing the currently high unemployment rate. Smith says that
something ought to be done quickly because the economy may not be able to restore itself to full
employment. Jones says that it is better to take a "hands-off" approach. Which of the following is most
likely to be true?
a. Smith and Jones are most likely both Keynesian economists with a few minor differences of
opinion.
b. Smith and Jones are most likely both classical economists with a few minor differences of
opinion.
c. Jones is likely to be a Keynesian economist and Smith is likely to be a classical economist.
d. Smith is likely to be a Keynesian economist and Jones is likely to be a classical economist.
e. none of the above.
35. Keynesian macroeconomists believe that the time it takes for falling wages and prices to eliminate a
recessionary gap is __________ enough to say that the economy is __________.
a. long; not self-regulating
b. long; self-regulating
c. short; not self-regulating
d. short; self-regulating
36. Keynes’s major work, The General Theory of Employment, Interest and Money, was published during
the
a. late 1800s.
b. mid-1700s.
c. 1930s.
d. Panic of 1907.
NOT: New
37. Who would be most likely to agree that "People do not always save more as interest rates rise"?
a. a classical economist
b. John Maynard Keynes
c. an efficiency wage theorist
d. a and b
e. a, b, and c
38. Autonomous consumption is
a. the change in consumption that results as a person's (or nation's) income increases or
decreases.
b. that portion of total consumption that is dependent upon the level of income.
c. the steady increase in the consumption of goods and services that automatically occurs as a
person grows from a child to an adult.
d. that portion of total consumption that is independent of the level of income.
39. Keynes believed that saving is

a. more responsive to changes in income than to changes in interest rates.
b. less responsive to changes in income than to changes in interest rates.
c. equally responsive to changes in income and to changes in interest rates.
d. dependent only on changes in interest rates.
40. Keynes believed that investment is

a. dependent on a number of factors, including business expectations.
b. mainly determined by changes in interest rates.
c. unrelated to business expectations.
d. related to business expectations only during recessionary periods.
41. Keynes believed that

a. Say's law would hold in a laissez-faire economy.
b. the economy would always be near or on its production possibilities frontier.
c. wages and prices are often inflexible in the downward direction.
d. the equilibrium level of output will always be at the full-employment level of output.
42. Which of the following statements is false?

a. Keynes believed that monopolistic elements in the economy will prevent immediate price
declines.
b. Keynes believed that during periods of high unemployment, labor unions will prevent
wages from falling fast enough to restore full employment.
c. Keynes believed that interest rate flexibility will ensure that saving is equal to investment.
d. Keynes did not believe in Say's law.
ANS: C PTS: 1 DIF: Difficulty: Challenging
43. Keynes believed that
a. the internal structure of the economy is extremely competitive and that wage-price
flexibility exists.
b. monopolistic elements in the economy prevent immediate and sharp price declines in
response to falling demand.
c. even though there are monopolistic elements in the economy, wage-price flexibility exists.
d. in spite of the competitiveness of the economy, wage-price flexibility does not exist.
ANS: B PTS: 1 DIF: Difficulty: Challenging
44. Which statement is consistent with what Keynes believed about consumption and disposable income?
a. Consumption depends upon disposable income and falls as disposable income rises.
b. Consumption rises by the same amount as disposable income rises.
c. Consumption rises by less than disposable income rises.
d. Disposable income depends upon consumption.
45. If income rises from $1,000 to $1,400 and consumption rises from $800 to $1,168, the marginal
propensity to consume is __________ percent.
a. 8
b. 85
c. 15
d. 92
NOT: New
46. The consumption function is a function showing the relationship between consumption and
a. disposable income.
b. exports.
c. interest rates.
d. investment.
47. According to the Keynesian consumption function, an increase in disposable income will result in
a. a decrease in consumption.
b. an increase in consumption.
c. a decrease in investment.
d. an increase in investment.
48. The ratio of the change in consumption to the change in income is called the
a. marginal utility of consumption.
b. average utility of consumption.
c. marginal propensity to consume.
d. average propensity to consume.
49. The marginal propensity to consume plus the marginal propensity to save is
a. equal to zero.
b. greater than zero but less than one.
c. equal to one.
d. greater than one.
50. If income rises from $1,000 to $1,400 and consumption rises from $1,100 to $1,440, the marginal
propensity to save (MPS) is
a. 0.15.
b. 0.85.
c. 0.25.
d. 0.20.
ANS: A PTS: 1 DIF: Difficulty: Challenging
NOT: New
51. Here is a consumption function: C = C0 + MPC(Yd). The C0 term is usually defined as

a. autonomous consumption.
b. point-zero consumption.
c. mandatory consumption.
d. propensitory consumption.
52. Here is a consumption function: C = C0 + MPC(Yd). If MPC is 0.80, then we know that
a. as Yd rises by $1, Co rises by $0.80.
b. as Yd rises by $1, C rises by $0.80.
c. Yd rises by $0.80.
d. as C0 rises by $0.80, Yd rises by $1.
53. Here is a consumption function: C = C0 + MPC(Yd). If C0 = $200, then we know that

a. if Yd is zero, C will be $200.
b. when Yd rises, C rises by $200.
c. when Yd falls, C falls by MPC times C0.
d. C will always equal C0.
54. If autonomous consumption rises by $20 and, as a result, Real GDP rises by $200, then the multiplier is
a. 4.
b. 5.
c. 6.
d. 10.
55. If autonomous consumption rises by $60 and, as a result, Real GDP rises by $240, then the marginal
propensity to consume is
a. 0.25.
b. 0.75.
c. 0.05.
d. 0.95.
NOT: New
56. The larger the marginal propensity to save,

a. the smaller the multiplier.
b. the larger the multiplier.
c. the smaller the change in Real GDP, given a change in autonomous consumption.
d. a and c
57. The total expenditure (TE) curve has the same slope as the __________ curve.
a. C (consumption)
b. I (investment)
c. G (government purchases)
d. NE (net exports)
58. On a TE-TP diagram consider a level of Real GDP at which the vertical distance to the TE line exceeds
the vertical distance to the 45-degree line. This Real GDP is __________ its equilibrium level, with
__________.
a. above; TE > TP
b. above; TE < TP
c. below; TE > TP
d. below; TE < TP
59. On a TE-TP diagram consider a level of Real GDP at which the vertical distance to the TE line is less
than the vertical distance to the 45-degree line. This Real GDP is __________ its equilibrium level, with
__________.
a. above; TE > TP
b. above; TE < TP
c. below; TE > TP
d. below; TE < TP
60. Suppose the MPC = 0.60 and government purchases increase by $40 billion. In Keynesian theory, which
of the following is true?
a. The TE curve shifts downward by $40 billion and Real GDP decreases by $40 billion.
b. The TE curve shifts upward by $40 billion, and Real GDP increases by $40 billion.
c. The TE curve shifts downward by $40 billion, and Real GDP decreases by $100 billion.
d. The TE curve shifts upward by $40 billion, and Real GDP increases by $100 billion.
61. Considering both the Keynesian and the aggregate demand-supply frameworks, if households as a group
experience an increase in wealth at a given price level, then the TE curve shifts __________, the AD
curve shifts __________, and Real GDP __________.
a. downward; leftward; decreases
b. downward; rightward; decreases
c. upward; rightward; increases
d. upward; leftward; increases
62. When the MPC = 0.9, the multiplier is

a. 0.20.
b. 1.25.
c. 2.50.
d. 5.00.
e. 10.00.
a. 5.00.
b. 0.25.
c. 4.00.
d. 7.50.

a. 0.40.
b. 2.50.
c. 1.67.
d. 6.00.
65. How is the multiplier expressed in terms of the MPS?

a. 1 - MPS
b. 1/MPS
c. 1/(1 - MPS)
d. 1/(1 + MPS)
66. A rise in MPC makes the total expenditures (TE) curve __________ and __________ the multiplier.
a. steeper; raises
b. steeper; lowers
c. flatter; raises
d. flatter; lowers
67. Keynes argued that

a. monopolistic elements in the economy will prevent an immediate sharp fall in prices as a
result of decreasing demand.
b. wages and prices are not flexible in a downward direction.
c. a and b
d. none of the above
68. Keynes assumed consumption is

a. inversely related to the rate of interest.
b. directly related to disposable income.
c. directly related to investment.
d. less than disposable income.
e. both b and d
Exhibit 10-3
Disposable
Consumption
Income
C
Yd
$2,000 $2,040
2,100 2,120
2,200 2,200
2,300 2,280
2,400 2,360
69. Refer to Exhibit 10-3. When disposable income equals $2,000, saving equals
a. -$20.
b. -$40.
c. 0.
d. $40.
e. $20.
a. -$20.
b. -$10.
c. 0.
d. $10.
e. $20.
71.
Refer to Exhibit 10-3. The marginal propensity to consume (MPC) is
a. 0.75.
b. 0.80.
c. 0.90.
d. 1.00.
72. Refer to Exhibit 10-3. The marginal propensity to save (MPS) is
a. 0.
b. 0.10.
c. 0.20.
d. 0.25.
73. Refer to Exhibit 10-3. The multiplier is

a. 4.
b. 5.
c. 10.
d. 1.
74. Which of the following is not an aspect of Keynesian economics?

a. Wages and prices tend to be inflexible downward.
b. Supply does not necessarily generate its own demand.
c. The interest rate is important in determining the level of investment, but not as important as
other variables.
d. Unemployment above natural unemployment is always a temporary phenomenon.
75. If the multiplier is 5, then the MPC must be

a. 1/5.
b. 1/6.
c. 3/4.
d. 4/5.
e. 2/3.
ANS: D PTS: 1 DIF: Difficulty: Challenging
76. If an economy consumes 75 percent of any increase in income, then an increase in autonomous
investment of $1 billion could result in an increase in Real GDP of as much as
a. $1.0 billion..
b. $4.0 billion.
c. $5.0 billion.
d. $1.8 billion.
e. $6.0 billion.
77. If we graph the consumption function such that it starts above the origin, this is because we are assuming
that
a. the MPC is positive.
b. the MPS is positive.
c. autonomous consumption is positive.
d. induced consumption is positive.
Exhibit 10-4
78. Refer to Exhibit 10-4. If the present level of disposable income is Yd1, autonomous consumption is equal
to
a. C0.
b. C1.
c. C2.
d. C1 - C0.
e. C2 - C1.
79. Refer to Exhibit 10-4. Marginal propensity to consume is equal to

a. AF divided by C0A.
b. C0A divided by AF.
c. AF divided by C0F.
d. C0F divided by AF.
80. Refer to Exhibit 10-4. Let Yd1 denote the present level of disposable income. An increase in disposable
income is likely to, ceteris paribus, cause a movement to point
a. A.
b. B.
c. F.
d. D.
e. E.
Exhibit 10-5
81. Refer to Exhibit 10-5 above. The equilibrium level of Real GDP is
a. $200 billion.
b. $400 billion.
c. $600 billion.
d. $800 billion.
82. Refer to Exhibit 10-5 When TE is $700 billion, what state is the economy in?
a. TE < TP, individuals are buying less output than firms produce.
b. TE > TP, individuals are buying more output than firms produce.
c. TE = TP, the economy is in equilibrium.
d. TE < TP, individuals are buying more output than firms produce.
e. TE > TP, individuals are buying less output than firms produce.
83. Refer to Exhibit 10-5 When TE is $200 billion, what state is the economy in?
a. TE < TP, individuals are buying less output than firms produce.
b. TE > TP, individuals are buying more output than firms produce.
c. TE = TP, the economy is in equilibrium.
d. TE < TP, individuals are buying more output than firms produce.
e. TE > TP, individuals are buying less output than firms produce.
84. Refer to Exhibit 10-5. When TE is $700 billion, what will firms most likely do next?
a. Firms will increase production to increase inventories to their optimum levels.
b. Firms will neither increase nor decrease production since the economy is in equilibrium.
c. Firms will cut back production to reduce inventories to their optimum levels.
d. It is impossible to determine what firms are likely to do based on this information.
85. Refer to Exhibit 10-5. When TE is $300 billion, what will firms most likely firms do next?
a. Firms will increase production to increase inventories to their optimum levels.
b. Firms will neither increase nor decrease production since the economy is in equilibrium.
c. Firms will cut back production to reduce inventories to their optimum levels.
d. It is impossible to determine what firms are likely to do based on this information.
86. Refer to Exhibit 10-5. When TE is $300 billion, what happens to inventories?
a. Inventories are at their optimum levels.
b. Inventories will fall, then rise above their optimum levels.
c. Inventories will fall below optimum levels.
d. Inventories will rise above optimum levels.
87. Refer to Exhibit 10-5. When TE is $800 billion, what happens to inventories?
a. Inventories are at their optimum levels.
b. Inventories will fall, then rise above their optimum levels.
c. Inventories will fall below optimum levels.
d. Inventories will rise above optimum levels.
88. In the real world, we should expect the multiplier process to work itself out
a. almost instantaneously.
b. within a few days.
c. within about one month.
d. only over many months, perhaps even years.
ANS: D PTS: 1 DIF: Difficulty: Easy
89. The multiplier process following a drop in autonomous spending is
a. just as powerful as for a rise in autonomous spending.
b. more powerful than for a rise in autonomous spending.
c. less powerful than for a rise in autonomous spending.
d. nonexistent, because the multiplier applies only to a rise in autonomous spending.
90. John Maynard Keynes believed that wages may be inflexible in the downward direction. Consequently,
an economy
a. could get stuck in long-run equilibrium.
b. could get stuck in a recessionary gap.
c. could get stuck in an inflationary gap.
d. would always produce more than Natural Real GDP.
e. b and c
91. The more firms that pay efficiency wages, the

a. more likely the economy will get stuck in a recessionary gap.
b. less likely the economy will get stuck in a recessionary gap.
c. more likely the economy will get stuck in an inflationary gap.
d. more likely (over time) the economy will produce Natural Real GDP.
e. b and c
92. According to efficiency wage models, labor productivity depends on

a. the number of employees at a firm; the smaller the number of employees, the more
productive each employee is.
b. the amount of capital that employees have to work with.
c. the wage rate the firm pays its employees; a cut in wages can cause labor productivity to
decline.
d. whether or not the economy is currently producing Natural Real GDP.
93. Which of the following statements is true?

a. Keynes believed wages are inflexible downward but prices (of goods and services) are
flexible.
b. Keynes believed an economy could get stuck in a recessionary gap.
c. Keynes originated the idea of efficiency wages.
d. Keynes believed the economy is self-regulating.
e. b and c
94. According to Keynes, aggregate demand could be too low in an economy. What does this mean?
a. It means there is not enough purchasing power in the economy to maintain stable prices.
b. It means there are too many of some goods produced and too few of other goods produced.
c. It means spending in the economy is too low to bring about full employment.
d. It means that wages may get stuck in a recessionary gap because there is not enough demand
(in the economy) to increase them.
95. For Say's law to hold in a money economy,

a. funds invested must give rise to an equal amount of funds spent.
b. funds saved must give rise to an equal amount of funds invested.
c. funds spent must give rise to an equal amount of output produced.
d. interest rates must fall when saving decreases.
e. b and c
96. Which of the following is consistent with the classical view of Say's law?
a. Saving increases by $2 billion and investment decreases by $2 billion.
b. Saving increases by $2 billion and consumption rises by $2 billion.
c. Saving increases by $2 billion, consumption decreases by $2 billion, and investment rises
by something less than $2 billion.
d. Saving decreases by $2 billion and consumption decreases by more than $2 billion.
97. Which of the following is consistent with Keynes's view of Say's law?
a. Saving increases by $3 billion, consumption falls by $3 billion, and investment rises by $3
billion.
b. Consumption rises by $3 billion and saving rises by more than $3 billion.
c. Saving rises by $3 billion, consumption falls by $3 billion, and investment rises by
something less than $3 billion.
d. Saving rises by $3 billion, consumption falls by $3 billion, and investment rises by $6
billion.
98. Which of the following is good evidence against the classical view of Say's law?
a. Investment does not always rise as interest rates fall.
b. Consumption falls by the amount that saving increases.
c. Exports are usually greater than imports.
d. People save more at higher interest rates than lower interest rates.
99. How does the classical position on saving differ from Keynes's position?
a. Classical position: people save more at lower interest rates. Keynes's position: people save
less at lower interest rates.
b. Classical position: changes in the interest rate are irrelevant to saving decisions. Keynes's
position: saving is directly related to the interest rate.
c. Classical position: saving is directly related to the interest rate. Keynes's position: at times,
saving may be inversely related to the interest rate.
d. Classical position: saving can be inversely related to the interest rate. Keynes's position:
consumption rises as saving rises.

a. Keynes believed that the level of investment depends on more than just the interest rate.
b. Saving is the difference between disposable income and consumption.
c. Keynes believed that saving is more responsive to changes in income than to changes in the
interest rate.
d. According to Keynes, wage rates may fall too quickly when the economy is in a
recessionary gap.
101. If consumption is $1,230 when disposable income is $1,420, and consumption is $1,400 when
disposable income is $1,620, then the marginal propensity to consume (MPC) is
a. 1.15.
b. 0.15.
c. 6.67.
d. 0.85.
NOT: New
102. Here is a consumption function: C = C0 + MPC(Yd). Which of the following is true about the
consumption function?
a. Consumption will rise if autonomous consumption or disposable income rise.
b. Consumption will fall if autonomous consumption falls or if the MPC rises.
c. Consumption will rise if autonomous consumption rises, MPC declines, or disposable
income rises.
d. For every $1 rise in autonomous consumption, consumption will also rise by $1.
e. a and d
103. Here is a consumption function: C = C0 + MPC(Yd). If consumption is $3,300, MPC =0.85, and
disposable income is $2,100, what does autonomous consumption equal?
a. $899.15
b. $450
c. $1,515
d. $4,785

a. MPC plus MPS equals 1.
b. MPC is additional saving divided by additional disposable income.
c. The MPS is the ratio of the change in saving to the change in disposable income.
d. If MPC equals 0.80, autonomous consumption equals $400, and disposable income equals
$600, then consumption equals $880.
105. If total production (TP) is greater than total expenditures (TE), it follows that
a. producers have produced more than individuals buy.
b. optimum inventory levels rise.
c. firms have underproduced.
d. actual inventory levels unexpectedly rise.
e. a and d
106. If total production (TP) is less than total expenditures (TE), it follows that
a. optimum inventory levels fall.
b. firms have underproduced.
c. firms increase the quantity of goods they produce.
d. b and c
e. a, b, and c
107. Inventory levels unexpectedly rise and firms cutback on production. Which of the following is
consistent with these two occurrences?
a. TP is greater than TE.
b. TP is less than TE.
c. TP is equal to TE.
d. TP is equal to TE minus the rise in inventories above the optimum inventory level.
108. Inventory levels unexpectedly fall and firms increase the quantity of goods and services they produce.
Which of the following is consistent with these two occurrences?
a. TP is greater than TE.
b. TP is less than TE.
c. TE is equal to TP minus the rise in inventories above the optimum inventory level.
d. TP is equal to TE.
e. b and c
109. Which of the following statements is true?

a. When TP = TE (total production = total expenditures), the economy is necessarily
producing Natural Real GDP.
b. When TP is greater than TE, inventory levels unexpectedly fall.
c. When TE is greater than TP, inventory levels unexpectedly rise.
d. b and c
110. Government purchases rise by $100 billion and the MPC is equal 0.75. Assuming that idle resources
exist at each expenditure round, and the multiplier is operative, the change in Real GDP equals
a. $40 billion.
b. $75 billion.
c. $400 billion.
d. $750 billion.
e. $250 billion.
NOT: New
111. Which of the following is true?

a. If MPC = 0.50, then the multiplier is 2.00.
b. If MPC = 0.82, then the multiplier is 1.25.
c. If MPS = 0.35, then the multiplier is 2.86.
d. If MPC = 0.97, then the multiplier is 3.33.
e. a and c
112. The economy is in equilibrium, TP = TE. Then, autonomous consumption rises. As a result, __________
rises, the __________ curve shifts __________, inventory levels unexpectedly __________, and
business firms __________ the quantity of goods and services they produce.
a. consumption; TE; downward; fall; increase
b. consumption; TE; upward; fall; increase
c. consumption; TE; upward; rise; decrease
d. investment; TE; upward; fall; increase
e. investment; TP; leftward; fall; increase
113. The economy is in equilibrium, TP = TE. Then, net exports fall. As a result, the __________ curve shifts
__________, inventory levels unexpectedly __________, and business firms __________ the quantity
of good and services they produce.
a. TE; upward; rise; increase
b. TP; rightward; rise; decrease
c. TE; downward; rise; decrease
d. TE; downward; rise; increase
114. The economy is in equilibrium, TP = TE, and Real GDP is $4,555 billion. The MPC is 0.80, the
multiplier is operative, and idle resources exist at each expenditure round. Government purchases rise by
$10 billion. As a result, the __________ curve shifts __________, inventory levels unexpectedly
__________, business firms ___________ the quantity of goods and services they produce, and Real
GDP __________ by __________.
a. TE; downward; fall; increase; rises; $10 billion.
b. TP; rightward; fall; decrease; falls; $50 billion
c. TE; upward; fall; increase; rises; $50 billion
d. TE; downward; rise; increase; rises, $50 billion
multiplier is operative, and idle resources exist at each expenditure round. Government purchases fall by
$17 billion. As a result, the TE curve shifts __________, inventory levels unexpectedly __________,
business firms __________ the quantity of goods and services they produce, and Real GDP __________
by __________.
a. downward; rise; decrease; falls; approximately $56.7 billion
b. downward; fall; increase; falls; approximately $56.7 billion
c. upward; rise; decrease; falls; $17 billion
d. upward; fall; decrease; rises; $17 billion
e. downward; rise; decrease; falls; approximately $11.9 billion
multiplier is operative, and idle resources exist at each expenditure round. Autonomous investment
spending rises by $13 billion. As a result, the __________ curve shifts __________, inventory levels
unexpectedly __________, business firms __________ the quantity of goods and services they produce,
and Real GDP __________ by __________.
a. TE, downward, rise, increase, rises, $32.5 billion
b. TE, upward, fall, increase, rises, $101.5 billion
c. TE, upward, fall, decrease, rises, $32.5 billion
d. TE, upward, fall, increase, rises, $32.5 billion
e. TP, upward, fall, increase, rises, $101.5 billion
117. The answer is: "It is sometimes in the best interest of business firms to pay their employees
higher-than-equilibrium wage rates." What is the question?
a. What do efficiency wage models imply?
b. What do classical economists say?
c. What is the central tenet of Say's law?
d. What did John Maynard Keynes say was the reason for inflexible wages?
118. If consumption is greater than disposable income, it follows that

a. interest rates are rising.
b. the budget deficit is shrinking.
c. saving is negative.
d. the multiplier is inoperative.
119. The change in disposable income is $200 and the change in saving is $50.What is the marginal
propensity to consume (MPC)?
a. 0.25
b. 0.50
c. 0.66
d. 0.75
e. There is not enough information to answer the question.
120. Autonomous spending rises by $10 billion and Real GDP rises by $50 billion. What does the marginal
propensity to save equal?
a. 0.10
b. 0.20
c. 0.80
d. 0.90
e. 0.50
NOT: New
121. There are no idle resources, the multiplier is operative, and autonomous spending rises. It follows that
a. Real GDP will not increase.
b. Real GDP will rise.
c. prices will rise.
d. a and c
e. a, b, and c
ANS: D PTS: 1 DIF: Difficulty: Easy
122. The answer is: 1/(1 - MPC). What is the question?

a. What is the marginal propensity to save?
b. What is the efficiency wage model?
c. What does consumption equal if the economy is in equilibrium?
d. What is the multiplier?
e. What does disposable income equal if the economy is in equilibrium?
123. Which of the following statements would Keynes be most likely to agree with?
a. Saving is more responsive to changes in interest rates than to changes in income.
b. Say's law holds in both a barter and money economy.
c. The internal structure of the economy is not always competitive enough to allow prices to
fall.
d. Investment is exclusively dependent upon the interest rate.
multiplier is operative, and idle resources exist at each expenditure round. Autonomous investment
spending falls by $10 billion. As a result, the TE curve shifts __________, inventory levels unexpectedly
__________, business firms __________ the quantity of goods and services they produce, and Real
GDP __________ by __________.
a. downward; rise; decrease; falls; $7.5 billion
b. downward; fall; increase; rises; $40 billion
c. downward; rise; decrease; falls; $40 billion
d. upward; rise; decrease; falls; $40 billion
e. downward; fall; decrease; falls; $7.5 billion
125. The economy is in equilibrium, TP = TE, and Real GDP is $500 billion. The MPC is 0.95, the multiplier
is operative, and idle resources exist at each expenditure round. Autonomous investment spending rises
by $4 billion. As a result, the TE curve shifts __________, inventory levels unexpectedly __________,
business firms __________ the quantity of goods and services they produce, and Real GDP __________
by __________.
a. upward; fall; increase; rises; $3.8 billion
b. upward; fall; increase; rises; $8 billion
c. downward; rise; decrease; falls; $80 billion
d. upward; fall; increase; rises; $80 billion
e. downward; fall; decrease; falls; $3.8 billion
126. If autonomous consumption rises, the TE curve shifts __________, the marginal propensity to consume
__________, and the TP curve __________.
a. upward; rises; shifts downward
b. upward; remains unchanged; remains unchanged
c. downward; rises; remains unchanged
d. upward; remains unchanged; shifts downward
127. In the Keynesian analysis of changes from one Real GDP level to another, which of the following plays
a critical role?
a. changes in prices
b. the relationship between optimum inventory levels and current inventory levels
c. the long-run aggregate supply (LRAS) curve
d. the relationship between total expenditures (TE) and the aggregate demand (AD) curve
128. The Keynesian aggregate supply curve is

a. vertical.
b. upward sloping.
c. horizontal until Natural Real GDP (QN) and vertical at QN.
d. sometimes upward sloping and sometimes horizontal.
e. downward sloping.
129. In the simple Keynesian model, an increase in aggregate demand leads to an increase in
a. Real GDP and the price level.
b. the price level and no change in Real GDP for levels of Real GDP below Natural Real GDP.
c. the price level and a decrease in Real GDP.
d. Real GDP and no change in the price level for levels of Real GDP below Natural Real GDP.
130. According to Keynes, the private sector (by itself)

a. can always move the economy out of a recessionary gap.
b. cannot always move the economy out of a recessionary gap.
c. can never move the economy out of a recessionary gap.
d. can only move the economy out of a recessionary gap if the SRAS curve drops.
e. can only move the economy out of a recessionary gap if the SRAS curve rises.
131. Given that the economy is operating in the horizontal section of the aggregate supply curve in the simple
Keynesian model, an increase in autonomous spending will ____________________ (assuming that the
economy remains in the horizontal section of the aggregate supply curve).
a. increase Real GDP and raise the price level
b. decrease Real GDP and raise the price level
c. increase Real GDP and leave the price level unchanged
d. increase Real GDP and lower the price level
132. Suppose the multiplier is 4. Ceteris paribus, a change in autonomous spending will change Real GDP
more if the aggregate supply curve is __________ than if it is __________.
a. horizontal; upward sloping
b. upward sloping; horizontal
c. upward sloping; downward sloping
d. downward sloping; upward sloping
133. John Maynard Keynes was a very famous economist from

a. the United States.
b. England.
c. Germany.
d. Ireland.
134. The more nearly horizontal the aggregate supply curve, the
a. greater the change in Real GDP for a given change in autonomous spending.
b. smaller the change in Real GDP for a given change in autonomous spending.
c. larger the multiplier.
d. smaller the multiplier.
e. a and c
135. In the simple Keynesian model, there are three simplifying assumptions. One of these assumptions is:
a. no consumption
b. no investment
c. no exports or imports
d. a and b
e. a, b, and c
136. In the simple Keynesian model, there are three simplifying assumptions. Among these assumptions is:
a. the price level is flexible
b. no foreign sector
c. the price level is constant until the economy reaches its full-employment level
d. the money supply always rises
e. b and c
Exhibit 10-6
137. Refer to Exhibit 10-6. Which of the following is consistent with the economy producing Q2?
a. Total expenditures (TE) is less than total production (TP).
b. Firms are currently holding their optimum inventory levels.
c. Autonomous spending is greater than zero.
d. Total expenditures (TE) are equal to total production (TP).
138. Refer to Exhibit 10-6. If government purchases decrease, it follows that

a. the TE curve will shift upward, possibly passing through point 2.
b. the TE curve will shift downward, possibly passing through point 3.
c. the TE curve will not change but the economy will move from point 1 to point 3.
d. the TE curve will not change but the economy will move from point 1 to point 2.
e. At the new equilibrium position, Real GDP will necessarily be Q3.
139. Refer to Exhibit 10-6. If investment increases, it follows that

a. the TE curve will shift upward, possibly passing through point 2.
b. the TE curve will shift downward, possibly passing through point 3.
c. the TE curve will not change but the economy will move from point 1 to point 3.
d. the TE curve will not change but the economy will move from point 1 to point 2.
e. At the new equilibrium position, Real GDP will necessarily be Q1.
140. Refer to Exhibit 10-6. If total production (TP) is greater than total expenditures (TE), the economy is
currently producing a level of Real GDP that is
a. equal to or lower than Q3.
b. equal to or greater than Q3.
c. less than Q2.
d. between Q2 and Q1.
e. greater than Q3.
141. John Maynard Keynes was the son of

a. one of the first female students to attend Cambridge University.
b. Russian ballerina Lydia Lopokova.
c. the mayor of London.
d. an eminent economist.
e. a and d
MSC: Economics 24/7
142. If Keynes’s theory is correct, wage rates may be _______________ in a _____________ direction
which means that the __________ curve will not shift to the __________ to remove the economy from a
recessionary gap as it would in a self-regulating economy.
a. inflexible; downward; AD; right
b. flexible; upward; SRAS; right
c. flexible; downward; AD; right
d. inflexible; upward; SRAS; left
e. inflexible; downward; SRAS; right
ANS: E PTS: 1 DIF: Difficulty: Challenging
143. Most economists think that the Keynesian position is that

a. the wage rate will never fall and the price level will never adjust downward if the economy
is in a recessionary gap.
b. the time required before wages and prices adjust downward is short enough for the economy
to be called self-regulating.
c. the time required before wages and prices adjust downward is long enough for the economy
to exist in a recessionary gap for a long time.
d. the time required before wages and prices adjust downward if the economy is in a
recessionary gap is rather long, but short enough for the economy to be considered
self-regulating.
144. Which of the following is a characteristic of consumption according to Keynes?

a. consumption depends on disposable income
b. consumption and disposable income have a direct relationship
c. when disposable income changes, consumption changes by less
d. a and c
e. a, b, and c
Exhibit 10-7
AS
Price Level
AD 2
AD 1
AD 4
AD 3
Q Real GDP
145. Refer to Exhibit 10-7. If autonomous consumption increases, which of the following is possible?
a. The AD curve will shift rightward from AD1 to AD2, the price level will remain constant,
and Real GDP will rise.
b. The AD curve will shift leftward from AD4 to AD3, the price level will fall, and Real GDP
will remain constant.
c. The AD curve will shift rightward from AD3 to AD4, the price level will remain constant,
and Real GDP will rise.
d. The AD curve will shift rightward from AD1 to AD2, the price level will rise, and Real GDP
will remain constant.
146. Refer to Exhibit 10-7. If investment decreases, which of the following is possible?
a. The AD curve shifts leftward from AD2 to AD1, the price level falls, and Real GDP remains
constant.
b. The AD curve shifts leftward from AD4 to AD3, the price level falls, and Real GDP remains
constant.
c. The AD curve shifts rightward from AD1 to AD2, the price level remains constant, and Real
GDP rises.
d. The AD curve shifts rightward from AD3 to AD4, the price level rises, and Real GDP
remains constant.
e. c and d
147. Refer to Exhibit 10-7. If government purchases decrease, which of the following is possible?
a. The AD curve shifts leftward from AD2 to AD1, the price level remains constant, and Real
GDP falls.
b. The AD curve shifts leftward from AD4 to AD3, the price level falls, and Real GDP remains
constant.
c. The AD curve shifts rightward from AD1 to AD2, the price level remains constant, and Real
GDP rises.
d. The AD curve shifts rightward from AD3 to AD4, the price level rises, and Real GDP
remains constant.
e. a and b
ANS: E PTS: 1 DIF: Difficulty: Challenging
148. In the TE-TP framework, total production

a. always equals total expenditures.
b. equals Real GDP.
c. is always greater than total expenditures.
d. is always less than total expenditures.
151. Here is a consumption function: C = C0 + MPC(Yd). If C0 = $300, then we know that

a. if Yd rises by $1, then Co rises by $1.
b. if Yd rises by $1, then C rises by $300.
c. as C0 rises by $15, C rises by $15.
d. as C0 rises by $15, Yd rises by $15.
152. Here is a consumption function: C = C0 + MPC(Yd). If consumption is $2,000, MPC =0.75, and
disposable income is $2,000, what does autonomous consumption equal?
a. $950
b. $3,500
c. $500
d. $4,500
153. John Maynard Keynes wrote which of the following?
a. Das Kapital
b. The Scope and Method of Political Economy
c. Wealth of Nations
d. The General Theory of Employment, Interest and Money
e. all of the above
Exhibit 10-8
Disposable
Income Consumption
$0 $300
500 675
1,000 1,050
1,500 1,425
2,000 1,800
2,500 2,175
3,000 2,550
154. Refer to Exhibit 10-8. The marginal propensity to consume (MPC) is

a. 0.90.
b. 0.10.
c. 0.80.
d. 0.95.
e. 0.75.
NOT: New
155. Refer to Exhibit 10-8. The marginal propensity to save (MPS) is

a. 0.90.
b. 0.10.
c. 0.75.
d. 0.25.
e. 4.00.
NOT: New
156. Refer to Exhibit 10-8. The multiplier is

a. 0.90.
b. 10.00.
c. 0.10.
d. 4.00.
e. 0.75.
NOT: New
157. Refer to Exhibit 10-8. The consumption function is

a. C = 0.75(Yd).
b. C = $3,000 + 0.90(Yd).
c. C = $300 + 0.25 (Yd).
d. C = $300 + 0.75(Yd).
NOT: New
a. $1,800.
b. $2,100.
c. $200.
d. -$200.
NOT: New
159. Refer to Exhibit 10-8. Autonomous consumption (Co) is equal to

a. $3
b. $30
c. $300.
d. $3,000.
160. Refer to Exhibit 10-8. When disposable income equals $500, saving equals
a. $125.
b. $500.
c. $175.
d. -$175.
NOT: New
Exhibit 10-9
Marginal Propensity to Marginal Propensity to
Consume (MPC) Save (MPS) Multiplier (m)
0.92 (A) (B)
(C) (D) 10
0.85 (E) (F)
(G) 0.20 (H)
161. Refer to Exhibit 10-9. What is the value of the marginal propensity to save (MPS) that would correctly
fill in blank (A) and the multiplier that would correctly fill in blank (B)?
a. 0.20; 5
b. 0.08; 8
c. 0.08; 12.5
d. 0.05; 0.95
NOT: New
162. Refer to Exhibit 10-9. What is the value of the marginal propensity to consume (MPC) that would
correctly fill in blank (C) and the marginal propensity to save (MPS) that would correctly fill in blank
(D)?
a. 0.90; 0.10
b. 0.10; 10
c. 0.90; 9
d. 0.01; 100
NOT: New
163. Refer to Exhibit 10-9. What is the value of the marginal propensity to save (MPS) that would correctly
fill in blank (E) and the multiplier that would correctly fill in blank (F)?
a. 0.012; 0.83
b. 0.12; 88
c. 0.15; 15
d. 0.15; 6.67
NOT: New
164. Refer to Exhibit 10-9. What is the value of the marginal propensity to consume (MPC) that would
correctly fill in blank (G) and the value of the multiplier that would correctly fill in blank (H)?
a. 0.80; 20
b. 0.80; 5
c. 0.20; 0.80
d. 0.50; 0.50
e. There is not enough information given to answer this question.
165. Which of the following is a basic point that Keynes made about consumption?
a. Consumption and disposal income are inversely related.
b. When disposable income changes, consumption changes by a greater amount.
c. Consumption is dependent upon disposable income.
d. b and c
e. all of the above
166. In the simple Keynesian model, a rightward shift in the aggregate demand curve __________ result in a
change in the price level when the economy is in the horizontal segment of the AS curve and
___________ result in a change in the price level if the economy is in the vertical segment of the AS
curve.
a. will not; will
b. will not; will not
c. will; will not
d. will; will
NOT: New
167. Economist Brown believes that changes in aggregate demand affect only the price level, and economist
Black believes that changes in aggregate demand affect only Real GDP. What does the aggregate
supply (AS) curve look like for each economist?
a. For economist Brown the AS curve is vertical and for economist Black the AS curve is
horizontal.
b. For economist Brown the AS curve is horizontal and for economist Black the AS curve is
vertical.
c. For economist Brown the AS curve is upward sloping and for economist Black the AS curve
is downward sloping.
d. For economist Brown the AS curve is downward sloping and for economist Black the AS
curve is upward sloping.
NOT: New
TRUE/FALSE
1. Keynes believed that saving is more responsive to changes in income than to changes in interest rates.
ANS: T PTS: 1 DIF: Difficulty: Moderate

2. The work of John Maynard Keynes led to a major revolution in economic thought.
ANS: T PTS: 1 DIF: Difficulty: Easy

3. According to Keynes, the economy is inherently unstable and may get stuck in a recessionary gap.

4. One similarity between the beliefs of the classical economists and Keynes is that increased saving would
necessarily stimulate an equal amount of increased investment spending.
ANS: F PTS: 1 DIF: Difficulty: Moderate

5. Keynes asserted that investment is more responsive to business expectations, technological changes and
innovation, than to changes in interest rates.

6. In Keynes' view, labor unions would resist wage cuts, but individual employees would go along with
wage cuts initiated by his/her employer.

7. Classical economists used efficiency wage models to support their belief in a self-regulating economy.

8. Efficiency wage models imply that workers are more productive when they are paid a higher wage, as
compared to when they are paid a lower wage.

9. A simple Keynesian model is representative of a closed economy, with no foreign sector.

10. The marginal propensity to consume (MPC) refers to the proportion of disposable income that is spent
on consumption.
ANS: F PTS: 1 DIF: Difficulty: Challenging

11. A consumption function is a statement that shows the relationship between interest rates and
consumption.

12. An increase in autonomous consumption, an increase in disposable income, or a decrease in the marginal
propensity to consume can all increase consumption.

LOC: DISC: Understanding and applying economic models KEY: Bloom's: Disposable Income
13. When total expenditure (TE) exceeds total production (TP), inventory levels rise unexpectedly, which
sends a signal to firms that they have overproduced, so they cut back on production.

14. The part of consumption that is dependent on disposable income is called autonomous consumption.

15. The marginal propensity to save (MPS) can be found using the equation: (1 - MPC).

16. A change in autonomous spending leads to a greater change in Real GDP through the multiplier process.

17. In reality, idle resources must exist in the economy in order for the multiplier process to lead to an
increase in Real GDP.

18. In a simple Keynesian model, the aggregate supply curve is upward sloping.
ANS: F PTS: 1 DIF: Difficulty: Easy

19. Many economists argue that the labor market may take a long time for wages to adjust to new
equilibrium level.

20. In the simple Keynesian model, the aggregate supply curve has a horizontal segment and a vertical
segment at full-employment.

21. The economy can be in equilibrium and in a recessionary gap simultaneously.

22. A decline in housing prices can help to push the economy into a recessionary gap.

MSC: Economics 24/7
ESSAY
1. Explain the sequence of events that occurs in the economy once total production (TP) is less than total
expenditure (TE).
ANS:
If TP is less than TE, it indicates that businesses have produced too little relative to what the three sectors
of the economy want to buy. The difference between TP and TE would result in an unexpected fall in
inventories. Falling inventories send a signal to firms that they have underproduced, so they will
increase the quantity of goods they produce. The rise in production causes Real GDP to increase and the
levels of TP and TE will move closer together. This cycle will continue until TE and TP are equal.
PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

2. Discuss how the Great Depression contributed to the development of Keynesian economics.
ANS:
During the Great Depression, high levels of unemployment and contracting Real GDP plagued many
countries around the world. The classical assertion in a self-regulating economy, one that could heal
itself of its economic ills, was not working out. This led Keynes and his followers to conclude that
laissez-faire was not a viable policy stance, and that the economy was inherently unstable.

3. Explain the process by which a change in autonomous spending can lead to an even greater change in
Real GDP.
ANS:
When autonomous spending increases, the multiplier process causes Real GDP to grow by some
multiple of the initial increase in spending. This occurs because an increase in spending generates an
equal increase in income. As income increases, another round of spending will be generated (MPC 
increase in spending), which will lead to yet another increase in income. This spending-income cycle
will continue until the dollar amount left to spend becomes very tiny. Theoretically, the resulting
change in Real GDP is equal to [1/(1-MPC)] times the initial change in spending.

4. What is the general format of the consumption function? Explain what each term means and use the
consumption function to explain the three different ways that consumption can increase.
ANS:
The general consumption formula is: C = Co + MPC(Yd). Co is autonomous consumption, which is the
part of consumption that is independent of the level of income. It does not change as disposable income
changes. MPC is the marginal propensity to consume and it represents the portion of a change in income
that is spent. Yd is the symbol for disposable income. This equation shows that consumption can change
as a result of a change in autonomous consumption, a change in the marginal propensity to consume, or
a change in disposable income. Consumption will rise when any one of these three variables rises.
PTS: 1 DIF: Difficulty: Challenging NAT: BUSPROG: Analytic

5. Describe Keynes' criticism of Say's law in a money economy.
ANS:
In order for Say's law to hold in a money economy, any decrease in saving would have to be offset by an
equal increase in investment. According to the Classical economists, this would happen through changes
in interest rates. Keynes disagreed with this view and pointed out that added saving would not
necessarily lead to an equal amount of added investment. Keynes asserted that people save and invest for
a variety of reasons, and not on one single variable such as interest rates. According to Keynes, saving is
more responsive to changes in income than to changes in the interest rate, and investment is more
responsive to change in technology and business expectations than to changes in interest rate.

6. Explain how the Keynesian view differs from the classical view with respect to saving. Explain further
how the two views differ with respect to investment.
ANS:
Classical economists believed that the amount of money saved and interest rates are directly related.
Therefore, savers would save more at higher interest rates than they would at lower interest rates. The
Keynesian view of saving is that savers may not necessarily save more at higher interest rates or save
less at lower interest rates. If savers have a given targeted amount that they are saving towards, a higher
interest rate will mean that they can actually save a smaller portion of their income to achieve that goal.
Keynes held that saving is more responsive to income than it is to the interest rate.
The classical view of investment is that the amount invested is inversely related to interest rates.
Therefore, businesses invest more at lower interest rates than they would at lower interest rates. The
Keynesian view of investment is that the interest rate is not the only factor important in determining
investment. Keynes held that other variables, such as business expectations, are also important
determining factors in determining investment. If businesses are pessimistic about the future then they
are unlikely to increase their level of investment, even if interest rates are relatively low.

7. What type of relationship exists between the marginal propensity to consume (MPC) and the multiplier?
Explain why this relationship exists.
ANS:
The MPC and the multiplier have a direct relationship. This occurs because the MPC measures the
portion of a change in income that is spent, and as more of each additional dollar of income is spent a
greater change in Real GDP occurs as a result. If people are reluctant to spend a change in their income
(indicating a relatively low MPC), less overall spending would occur and fewer new goods and services
would need to be produced.

8. Using the concept of the multiplier, explain in detail how college students flocking to beach towns for
spring break can positively impact the beach towns’ economies.
ANS:
College students on spring break will spend money on lodging, food and drink, souvenirs, and so on.
From the perspective of the beach town, this money represents autonomous spending and an increase in
income. In turn, the beach town residents will spend a portion of this increase in income, which
generates additional income for others, and so on and so on. Ultimately, the beach town economy can
grow by some multiple of the additional spending done by the college students.

MSC: Economics 24/7
9. As portrayed in terms of total expenditures (TE) and total production (TP), discuss at least three
assumptions that sum up the workings of the simple Keynesian model.
ANS:
The simple Keynesian model can be summarized as follows: (1) The price level is constant until Natural
Real GDP is reached. (2) If C, I, or G changes, the TE curve will shift. (3) The economy could be in
equilibrium and in a recessionary gap simultaneously. (4) The private sector may not be able to remove
itself from a recessionary gap. (5) The government may have to intervene to help push the economy so
that it moves out of a recessionary gap and to its Natural Real GDP level.

10. Describe the three basic points that Keynes made regarding consumption. Briefly explain why
consumption was such a main concern in the Keynesian model.
ANS:
The three basic points that Keynes made about consumption are: (1) Consumption depends on
disposable income, (2) Consumption and disposable income are directly related, and (3) any change in
income will be greater than any resulting change in consumption. Consumption was a major concern
for Keynes because it makes up the largest portion of total spending.

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Citizens of United States, not to be abridged on account of color, race, or previous
condition of servitude, (15th amendment), .. .. 20
Citizens of each State shall be entitled to the privileges and immunities of citizens in
the several States, 4 2 17
Claims, no prejudice to certain, 4 3 17
of the United States, or of the several States, not to be prejudiced by any
construction of the Constitution, 4 3 18
Coasting trade, regulations respecting, 1 9 15
Coin, Congress fix value of foreign, 1 8 15
Commerce, Congress to regulate, 1 8 15
regulations respecting, to be equal and uniform, 1 9 15
Commissions to be granted by the President, 2 3 17
Common law recognized and established, (7th amendment), .. .. 19
Congress vested with power, 1 1 13
may alter the regulations of State legislatures concerning elections of senators and
representatives, except as to place of choosing senators, 1 4 14
shall assemble once every year, 1 4 14
officers of government cannot be members of, 1 6 14
may provide for cases of removal, death, &c., of President and Vice-President, 2 1
16
may determine the time of choosing electors of President and Vice-President, 2 1
16
may invest the appointment of inferior officers in the President alone, in the
courts of law, or the heads of departments, 2 2 16
may establish courts inferior to the Supreme Court, 3 1 17
may declare the punishment of treason, 3 3 17
may prescribe the manner of proving the acts and records of each State, 4 1 17
to assent to the formation of new States, 4 3 18
may propose amendments to Constitution or call a convention, 5 1 18
to lay and collect duties, 1 8 15
to borrow money, 1 8 15
to regulate commerce, 1 8 15
to establish uniform laws of bankruptcy and naturalization, 1 8 15
to coin money, to regulate the value of coin, and fix a standard of weights and
measures, 1 8 15
to punish counterfeiting, 1 8 15
to constitute tribunals inferior to the Supreme Court, 1 8 15
to define and punish piracies, felonies on the high seas, and offenses against the
laws of nations, 1 8 15
to establish post offices and post roads, 1 8 15
to authorize patents to authors and inventors, 1 8 15
to declare war, grant letters of marque, and make rules concerning captures, 1 8
15
to raise and support armies, 1 8 15
to provide and maintain a navy, 1 8 15
to make rules for the government of the army and navy, 1 8 15
to call out the militia in certain cases, 1 8 15
to organize, arm, and discipline militia, 1 8 15
to exercise exclusive legislation over seat of government, 1 8 15
to pass laws necessary to carry the enumerated powers into effect, 1 8 15
to dispose of and make rules concerning the territory or other property of the
United States, 4 3 18
President may convene and adjourn in certain cases, 2 3 17
may enforce prohibition of slavery by appropriate legislation, (amendment), 13 2
20
Congress may, by a two-third’s vote, remove disability of persons who engaged in
rebellion, (14th amendment), 14 8 20
shall have power, by appropriate legislation, to enforce the provisions of Article
XIV, (14th amendment), 14 5 20
shall have power to enforce the provisions of Article XV, (15th amendment), 15 2
20
representation in, how apportioned, (14th amendment), .. 2 20
Constitution, how amended, 5 1 18
laws and treaties declared to be the supreme law, 6 1 18
rendered operative by the ratification of nine States, 7 1 18
Contracts, no law impairing, 1 10 16
Conventions for proposing amendments to the Constitution, 5 1 18
Counterfeiting, Congress to provide for punishment of, 1 8 15
Court, Supreme, its original and appellate jurisdiction, 3 2 17
Courts inferior to the Supreme Court may be ordained by Congress, 1 8 15
Ditto Ditto, 3 1 17
Crimes, persons accused of, fleeing from justice, may be demanded, 4 2 17
how to be tried, 3 2 17
Criminal prosecutions, proceedings in cases of, .. .. 19
Debts against the confederation to be valid, 6 1 18

Debt, public, authorized by law, shall not be questioned, (14th amendment), .. 4 20
incurred in aid of rebellion not to be assumed or paid, (14th amendment), .. 4 20
Disability of persons who engaged in rebellion (14th amendment), .. 3 20
Duties to be laid by Congress, and to be uniform, 1 8 15
further provision respecting, 1 9 15
cannot be laid by the States, 1 10 16
on exports prohibited, 1 9 15
on imports and exports imposed by States shall inure to the treasury of the United
States, 1 10 16
Elections of Senators and representative shall be prescribed by the States, 1 4 14
qualifications and returns of members of Congress to be determined by each
house, 1 5 14
Electors of President and Vice-President, how chosen, and their duties, 2 1 16
altered (see 12th amendment), .. .. 19
to vote the same day throughout the United States, 2 1 16
no senator or representative, or public officer, shall serve as, 2 1 16
Enumeration every ten years, 1 2 13
Executive power vested in the President, (see President), 2 1 16
Exports not to be taxed, 1 9 15
and imports, States prohibited from laying duties on, 1 10 16
Ex post facto law, none shall be passed, 1 9 15
prohibited to States, 1 10 16
Fines, excessive prohibited, .. .. 19

Fugitives from justice to be delivered up, 4 2 17
from service may be reclaimed, 4 2 17
Habeas corpus, writ of, can be suspended in cases of rebellion or invasion, 1 9 15

House of Representatives. (See Representatives.)
Impeachment to be brought by House of Representatives, 1 2 13

tried by the Senate, 1 3 14
Impeachment, judgment on, 1 3 14
all civil officers liable to, 2 4 17
Importation of slaves, not prohibited till 1808, 1 9 15
Judges shall hold their office during good behavior, 3 1 17

their compensation, 3 1 17
Judiciary—tribunals inferior to Supreme Court may be created, 1 8 15
Judicial power vested in a Supreme Court and courts inferior, 3 1 17
powers of the judiciary, 3 2 17
restriction as to suits against a State, .. .. 19
Judicial proceedings of each State are entitled to faith and credit in every State, 4 1
17
Jury trial secured, and shall be held in the State where the crime shall have been
committed, 3 2 17
further regulated, (6th amendment), .. .. 19
secured in suits at common law where the value of controversy shall exceed
twenty dollars, (7th amendment), .. .. 19
Law, what is declared the supreme, 6 1 18

common, recognized and established, (7th amendment), .. ..
Laws, President to see them faithfully executed, 2 3 17
Legislative powers vested in Congress. (See Congress.)
Loans, authority to make, 1 8 15
Marque and reprisal, letters of, 1 8 15

Militia to be called out, 1 8 15
to be officered by the States, 1 8 15
to be commanded by the President, 2 2 19
their right to keep and bear arms secured, (2d amendment), .. .. 19
Money shall be drawn from the treasury only by appropriation laws, 1 9 15
Congress to coin and regulate value of, 1 8 15
States cannot make, 1 10 16
Naturalization, uniform rules of, 1 8 15

Navy, Congress to provide and govern, 1 8 15
Nobility, titles of, shall not be granted by the United States, 1 9 15
nor by the States, 1 10 12
Oath of the President, 2 1 16

of the public officers, 6 1 18
Office, who prohibited from holding, (14th amendment), .. 3 20
Officers of the House of Representatives shall be chosen by the House, 1 2 13
Officers of the Senate shall be chosen by the Senate, 1 3 14
civil, may be removed by impeachment, 2 4 17
Order of one house requiring the concurrence of the other, 1 7 14
Pardons, President may grant, 2 2 16

Patents to be granted to inventors, 1 8 15
Petition, right of, .. .. 19
Persons held to service or labor, their importation or migration into the United
States may be prohibited after 1808, 1 9 15
escaping from one State to another shall be delivered up to those entitled to
service, 4 2 17
Piracy, Congress to prescribe punishment for, 1 8 15
Post offices and post roads, establishment of, 1 8 15
Powers not delegated to Congress nor prohibited to the States are reserved, (10th
amendment), .. .. 19
legislative (See Congress.)
executive (See President.)
judicial (See Judicial.)
Presents from foreign powers to public officers prohibited, 1 9 15
Press, freedom of
President of the U. S. vested with the executive power, 2 1 16
shall be chosen for four years, 2 1 16
how elected, 2 1 16
same, (12th amendment), .. .. 19
qualifications for, 2 1 16
who shall act in case of vacancy, 2 1 16
compensation of, 2 1 16
shall take an oath of office, 2 1 16
may be removed by impeachment, 2 4 17
President, commander of army, navy, and militia, 2 2 16
may require the written opinion of the heads of departments, 2 2 16
may reprieve and pardon, 2 2 16
may make treaties with consent of the Senate, 2 2 16
may appoint to office with consent of the Senate, 2 2 16
shall fill up vacancies happening during the recess of the Senate, 2 2 16
shall give information to Congress and recommend measures, 2 3 17
may convene both houses or either house, 2 3 17
may adjourn them in case of disagreement, 2 3 17
shall receive ambassadors and public ministers, 2 3 17
shall take care that the laws be faithfully executed, 2 3 17
shall commission all officers, 2 3 17
Privileges and immunities of members of Congress, 1 6 14
of citizens (See Citizens, also Rights.)
Property, Congress to provide for care of public, 4 3 18
shall not be taken for public use without just compensation, (5th amendment), .. ..
Punishments, cruel and unusual, prohibited, .. ..
Quorum for business, what shall be a, 1 5 14

of States in choosing a President by the House of Representatives, 2 1 16
Quartered, no soldier to be quartered on a citizen, .. .. 19
Rebellion, debt incurred in aid of, not to be assumed or paid, (14th amendment), .. 4
20
disability of persons who have engaged in (14th amendment), .. 3 20
Receipts and expenditures, accounts of, to be published, 1 9 15
Records, how to be authenticated, 4 1 17
Religion—no law to be made—free exercise of, .. .. 19
religious test not required, 6 .. 18
Reprieves granted by the President, 2 2
Representatives, House of, composed of members chosen every second year, 1 2 13
qualifications of voters, 1 2 13
qualifications of members, 1 2 13
apportionment of, 1 2 13
vacancies, how supplied, 1 2 13
shall choose their officers, 1 2 13
shall have the power of impeachment, 1 2 13
Representation shall be the judge of the election and qualifications of its members, 1
5 14
what shall be a quorum, 1 5 14
any number may adjourn and compel the attendance of absentees, 1 5 14
may determine the rules of proceeding, 1 5 14
may punish or expel a member, 1 5 14
shall keep a journal and publish the same, 1 5 14
shall not adjourn for more than three days nor to any other place, without the
consent of the Senate, 1 5 14
one-fifth may require the yeas and nays, 1 5 14
shall originate bills for raising revenue, 1 7 14
compensation to be ascertained by law, 1 6 14
privileged from arrest, except in certain cases, 1 6 14
Representatives shall not be questioned for speech or debate in the House, 1 6 14
shall not be appointed to office, 1 6 14
shall not serve as electors of President, 2 1 16
and direct taxes apportioned according to numbers, 1 2 13
how apportioned among the several States, (14th amendment), .. 2 20
who prohibited from being, (14th amendment), .. 3 20
of a State, vacancies in, supplied until a new election by executive authority, 1 2 13
Resolution, order, or vote, requiring the concurrence of both houses, to undergo the
formalities of bills, 1 7 14
Revenue bills to originate in the House of Representatives, 1 7 14
Rights of the citizen declared to be—
privileges of citizens of the several States, 4 2 17
liberty of conscience in matters of religion, .. .. 19
freedom of speech and of the press, .. .. 19
to assemble and petition, .. .. 19
to keep and bear arms, .. .. 19
to be exempt from the quartering of soldiers, .. .. 19
to be secure from unreasonable searches and seizures, .. .. 19
to be free from answering for a crime, unless on presentment or indictment of a
jury, .. .. 19
not to be twice jeoparded for the same offence, .. .. 19
not to be compelled to be a witness against himself, .. .. 19
not to be deprived of life, liberty, or property without due course of law, .. .. 19
private property not to be taken for public use, .. .. 19
in criminal prosecutions, shall enjoy the right of a speedy trial by jury, with all the
means necessary for his defence, .. .. 19
in civil cases trial to be by jury, and shall only be re-examined according to
common law, .. .. 19
excessive bail shall not be required, excessive fines imposed, no cruel nor unusual
punishment inflicted, .. .. 19
enumeration of certain rights shall not operate against retained rights, .. .. 19
Rules, each house shall determine its own, 1 5 14
Seat of government, exclusive legislation, 1 8 15

Searches and seizures, security against, .. .. 19
Senate, composed of two senators from each State, 1 3 14
how chosen, classed, and terms of service, 1 3 14
Senate, qualifications of senators, 1 3 14
Vice-President to be President of the, 1 3 14
shall choose their officers, 1 3 14
shall be the judge of the elections and qualifications of its members, 1 5 14
what number shall be a quorum, 1 5 14
any number may adjourn, and compel attendance of absentees, 1 5 14
may determine its rules, 1 5 14
may punish or expel a member, 1 5 14
shall keep a journal, and publish the same, except parts requiring secrecy, 1 5 14
shall not adjourn for more than three days, nor to any other place, without the
consent of the other house, 1 5 14
one-fifth may require the yeas and nays, 1 5 14
may propose amendments to bills for raising revenue, 1 7 14
shall try impeachments, 1 3 14
effect of their judgment on impeachment, 1 3 14
compensation to be ascertained by law, 1 6 14
privileged from arrest, 1 6 14
not questioned for any speech or debate, 1 6 14
shall not be appointed to office, 1 6 14
Senator, shall not be elector, 2 1 16
who prohibited from being, (14th amendment), .. 3 20
Senators and representatives, elections of, how prescribed, 1 4 14
Slaves, their importation may be prohibited after 1808, 1 9 15
escaping from one State to another may be reclaimed, 4 2 17
claims for the loss or emancipation of, to be held illegal and void, (14th
amendment), .. 4 20
Slavery, except as a punishment for crime, prohibited, amendment, 13 1 20
Congress authorized to enforce the prohibition of, (amendment), 13 2 20
Soldiers not quartered on citizens, .. .. 19
Speaker, how chosen, 1 2 13
Speech, freedom of, .. .. 19
States prohibited from—
entering into treaty, alliance, or confederation, 1 10 16
granting letters of marque, 1 10 16
coining money, 1 10 16
emitting bills of credit, 1 10 16
making anything a tender but gold and silver coin, 1 10 16
prohibited from—
passing bills of attainder, ex post facto laws, or laws impairing contracts, 1 10 16
granting titles of nobility, 1 10 16
laying duties on imports and exports, 1 10 16
laying duties on tonnage, 1 10 16
keeping troops or ships of war in time of peace, 1 10 16
entering into any agreement or contract with another State or foreign power, 1
10 16
engaging in war, 1 10 16
abridging right of United States citizens of, to vote on account of race or color,
(15th amendment), .. 1 20
States, new, may be admitted into the Union, 4 3 18
may be admitted within the jurisdiction of others, or by the junction of two or
more, with the consent of Congress and the legislatures concerned, 4 3 18
State judges bound to consider treaties, the Constitution, and the laws under it, as
supreme, 6 .. 18
State, every, guarantied a republican form of government, protected by United
States, 4 4 18
Supreme Court. (See Court and Judiciary.)
Suits at common law, proceedings in, .. .. 19
Tax, direct, according to representation, 1 2 13

shall be laid only in proportion to census, 1 9 15
Tax on exports prohibited, 1 9 15
Tender, what shall be a legal, 1 10 16
Territory or public property, Congress may make rules concerning, 4 3 18
Test, religious, shall not be required, 6 .. 18
Titles. (See Nobility.)
Title from foreign state prohibited, 1 9 15
Treason, defined, 3 3 17
two witnesses, or confession, necessary for conviction, 3 3 17
punishment of, may be prescribed by Congress, 3 3 17
Treasury, money drawn from, only by appropriation, 1 9 15
Treaties, how made, 2 2 16
the supreme law, 6 .. 18
States cannot make, 1 10 16
Vacancies happening during the recess may be filled temporarily by the President, 2
2 16
in representation in Congress, how filled, 1 2 13
Veto of the President, effect of, and proceedings on, 1 7 14
Vice-President of the U. S. to be President of the Senate, 1 3 14
how elected, 2 1 16
amendment, .. .. 19
shall, in certain cases, discharge the duties of President, 2 1 16
may be removed by impeachment, 2 4 17
Vote of one house requiring the concurrence of the other, 1 7 14
right of citizens to, not to be abridged on account of race or color, (15th
amendment), .. 1 20
War, Congress to declare, 1 8 15

Warrants for searches and seizures, when and how they shall issue (14th
Witness, in criminal cases, no one compelled to be against himself (5th
Weights and Measures, standard of, 1 8 15
Yeas and nays entered on journal, 1 6 14

BOOK V.
TABULATED HISTORY OF POLITICS.
Aggregate Issues of Paper Money in War Times, 5004
Ante-war Debts, 5015
Cabinet Officers of the Administrations, 5013

Chronological Politics, 1765–1892, 5025
Civil Officers, 5018
Customs Tariff of Great Britain, 5010
Electoral Votes for President and Vice-President, 5005

Electoral Votes; Number to which each State has been Entitled, 1789–1892, 5016
Gold; Highest and Lowest Prices of, 5024
Interest Laws of all the States and Territories of the United States, 5004
Length of Sessions of Congress, 1779–1881, 5018
National Commerce, per capita, 5023

National Debt, per capita, 5023
National Expenditures, per capita, 5023
Popular and Electoral Votes in Presidential Elections, 1789–1889, 5011

Presidents and Vice-Presidents,, 5010
President and Vice-President, Candidates for, 5016
Rebellion, Expenditures caused by, 5021
Signers of Declaration of Independence, 5015

Speakers of House of Representatives, 5020
States, when admitted, 5019
Supreme Courts, 5017
Territories, when Organized, 5019

Troops furnished by each State, 1861–65, 5020
Troops, number of called into service during the Rebellion, 5017
Value of United States Money in Foreign Gold and Silver Coin, 5003
1. Edwin Williams in Statesman’s Manual.

2. From the Statesman’s Manual, Vol. 1., by Edwin Williams.
3. Note.—See Constitution, Art. 3, Sec. 4, p. 5.
4. In the Ritual the words in parentheses are omitted. In the key to the Ritual, they are written in
figures—the alphabet used being the same as printed below. So throughout.
Key to Unlock Communications.
A B C D E F G H I J K L M
1 7 13 19 25 2 8 14 20 26 3 9 15
N O P Q R S T U V W X Y Z
21 4 10 16 22 5 11 17 23 6 12 18 24
5. Concerning what is said of cities, the key to the Ritual says: “Considered unnecessary to
decipher what is said in regard to cities.”
6. President Buchanan’s Inaugural Address.
7. From Mr. Buchanan’s Administration on the eve of the Rebellion, published by D. Appleton &
Co., 1866.
8. The Provisional Constitution adopted by the Seceded States differs from the Constitution of
the United States in several important particulars. The alterations and additions are as follows:
ALTERATIONS.
1st. The Provisional Constitution differs from the other in this: That the legislative powers of the
Provisional Government are vested in the Congress now assembled, and this body exercises all the
functions that are exercised by either or both branches of the United States Government.
2d. The Provisional President holds his office for one year, unless sooner superseded by the
establishment of a permanent Government.
3d. Each State is erected into a distinct judicial district, the judge having all the powers
heretofore vested in the district and circuit courts; and the several district judges together compose
the supreme bench—a majority of them constituting a quorum.
4th. Whenever the word “Union” occurs in the United States Constitution the word
“Confederacy” is substituted.
THE FOLLOWING ARE THE ADDITIONS.

1st. The President may veto any separate appropriation without vetoing the whole bill in which it
is contained.
2d. The African slave-trade is prohibited.
3d. Congress is empowered to prohibit the introduction of slaves from any State not a member of
this Confederacy.
4th. All appropriations must be upon the demand of the President or heads of departments.
OMISSIONS.
1st. There is no prohibition on members of Congress holding other offices of honor and
emolument under the Provisional Government.
2d. There is no provision for a neutral spot for the location of a seat of government, or for sites
for forts, arsenals, and dock-yards; consequently there is no reference made to the territorial powers
of the Provisional Government.
3d. The section in the old Constitution in reference to capitation and other direct tax is omitted;
also, the section providing that no tax or duty shall be laid on any exports.
4th. The prohibition on States keeping troops or ships of war in time of peace is omitted.
5th. The Constitution being provisional merely, no provision is made for its ratification.
AMENDMENTS.
1st. The fugitive slave clause of the old Constitution is so amended as to contain the word “slave,”
and to provide for full compensation in cases of abduction or forcible rescue on the part of the State
in which such abduction or rescue may take place.
2d. Congress, by a vote of two-thirds, may at any time alter or amend the Constitution.
TEMPORARY PROVISIONS.
1st. The Provisional Government is required to take immediate steps for the settlement of all
matters between the States forming it and their other late confederates of the United Slates in
relation to the public property and the public debt.
2d. Montgomery is made the temporary seat of government.
3d. This Constitution is to continue one year, unless altered by a two-thirds vote or superseded
by a permanent Government.
9. From Lalor’s Encyclopædia of Political Science, published by Rand & McNally. Chicago, Ill.
10. Official Journal of the Convention, pp. 9 and 10.
11. The text of Webster’s speech in reply to Hayne, now accepted as the greatest constitutional
exposition ever made by any American orator, will be found in our book devoted to Great Speeches
on Great Issues.
12. These were afterwards seized.
13. The attempted removal of these heavy guns from Allegheny Arsenal, late in December, 1860,
created intense excitement. A monster mass meeting assembled at the call of the Mayor of the city,
and citizens of all parties aided in the effort to prevent the shipment. Through the interposition of
Hon. J. K. Moorhead, Hon. R. McKnight, Judge Shaler, Judge Wilkins, Judge Shannon, and others
inquiry was instituted, and a revocation of the order obtained. The Secessionists in Congress bitterly
complained of the “mob law” which thus interfered with the routine of governmental affairs.—
McPherson’s History.
14. Resigned January 17th, 1861, and succeeded by Hon. Lot M. Morrill.
15. Did not attend.
16. Resigned and succeeded January 2d, 1861, by Hon. Stephen Coburn.
17. From the “History of Abraham Lincoln and the Overthrow of Slavery,” by Hon. Isaac N.
Arnold.
18. 1864, February 15—Repealed the above act, but provided for continuing organizations of
partisan rangers acting as regular cavalry and so to continue; and authorizing the Secretary of War to
provide for uniting all bands of partisan rangers with other organizations and bringing them under
the general discipline of the provisional army.
19. See memorandum at end of list.
20. This incident was related to the writer by Col. A. K. McClure of Philadelphia, who was in
Lancaster at the time.
21. Arnold’s “History of Abraham Lincoln.”
22. On the 23d of July, 1861, the Attorney-General, in answer to a letter from the United States
Marshal of Kansas, inquiring whether he should assist in the execution of the fugitive slave law,
wrote:
Attorney-General’s Office, July 23, 1861.
J. L. McDowell, U. S. Marshal, Kansas:
Your letter, of the 11th of July, received 19th, (under frank of Senator Lane, of Kansas,) asks
advice whether you should give your official services in the execution of the fugitive slave law.
It is the President’s constitutional duty to “take care that the laws be faithfully executed.” That
means all the laws. He has no right to discriminate, no right to execute the laws he likes, and leave
unexecuted those he dislikes. And of course you and I, his subordinates, can have no wider latitude of
discretion than he has. Missouri is a State in the Union. The insurrectionary disorders in Missouri are
but individual crimes, and do not change the legal status of the State, nor change its rights and
obligations as a member of the Union.
A refusal by a ministerial officer to execute any law which properly belongs to his office, is an
official misdemeanor, of which I have no doubt the President would take notice. Very respectfully
EDWARD BATES.
23. Republicans in Roman; Democrats in italics.

24. Democrats in italics.
25. Republicans in roman; Democrats in italics.
26. In 1860 a vote was had in the State of New York on a proposition to permit negro suffrage
without a property qualification. The result of the city was—yeas 1,640. nays 37,471. In the State—
yeas 197,505, nays 337,984. In 1864 a like proposition was defeated—yeas 85,406, nays 224,336.
In 1862, in August, a vote was had in the State of Illinois, on several propositions relating to
negroes and mulattoes, with this result:
For excluding them from the State 171,893
Against 71,306
100,587
Against granting them suffrage or right to office 21,920
For 35,649
176,271
For the enactment of laws to prohibit them from going to, or voting in, the
State 198,938
Against 44,414
154,524
—From McPherson’s History of the Great Rebellion.
27. December 23, 1862—Jefferson Davis issued a proclamation of outlawry against Major
General B. F. Butler, the last two clauses of which are:
Third. That all negro slaves captured in arms be at once delivered over to the executive
authorities of the respective States to which they belong, to be dealt with according to the laws of said
States.
Fourth. That the like orders be executed in all cases with respect to all commissioned officers of
the United States when found serving in company with said slaves in insurrection against the
authorities of the different States of this Confederacy.
28. McPherson’s History, page 317.
29. This act is in those words:
Be it enacted, &c., That hereafter every person elected or appointed to any office of honor or
profit under the government of the United States, either in the civil, military, or naval departments of
the public service, excepting the President of the United States, shall, before entering upon the duties
of such office, and before being entitled to any of the salary or other emoluments thereof, take and
subscribe the following oath or affirmation: “I, A B, do solemnly swear (or affirm) that I have never
voluntarily borne arms against the United States since I have been a citizen thereof; that I have
voluntarily given no aid, countenance, counsel, or encouragement to persons engaged in armed
hostility thereto; that I have never sought nor accepted nor attempted to exercise the functions of any
office whatever, under any authority or pretended authority, in hostility to the United States; that I
have not yielded a voluntary support to any pretended government, authority, power, or constitution
within the United States, hostile or inimical thereto; and I do further swear (or affirm) that, to the
best of my knowledge and ability, I will support and defend the Constitution of the United States
against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I
take this obligation freely, without any mental reservation or purpose of evasion, and that I will well
and faithfully discharge the duties of the office on which I am about to enter; so help me God;” which
said oath, so taken and signed, shall be preserved among the files of the Court, House of Congress, or
Department to which the said office may appertain. And any person who shall falsely take the said
oath shall be guilty of perjury, and on conviction, in addition to the penalties now prescribed for that
offense, shall be deprived of his office, and rendered incapable forever after, of holding any office or
place under the United States.
30. Compiled by Hon. Edward McPherson in his Hand-Book of Politics for 1868.
31. Unofficial.
32. From Greeley’s Recollections of a Busy Life, page 413.
33. From the Century of Independence by John Sully, Boston.
34. The following is a correct table of the ballots in the New York Democratic Convention:
Candidates. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.
Horatio
Seymour 9
George H.
Pendleton 105 104 119½ 118½ 122 122½ 137½ 156½ 144 147½ 144½
Andrew
Johnson 65 52 34½ 32 24 21 12½ 6 5½ 6 5½
Winfield S.
Hancock 33½ 40½ 45½ 43½ 46 47 42½ 28 34½ 34 33½
Sanford E.
Church 33 33 33 33 33 33 33
Asa Packer 26 26 26 26 27 27 26 26 26½ 27½ 26
Joel Parker 13 15½ 13 13 13 13 7 7 7 7 7
James E.
English 16 12½ 7½ 7½ 7 6 6 6 6
James R.
Doolittle 13 1½ 12 12 15 12 12 12 12 12 12½
Reverdy
Johnson 8½ 8 11 8 9½
Thomas A.
Hendricks 2½ 2 9½ 11½ 19½ 30 39½ 75 80½ 82½ 88
F. P. Blair,
Jr. ½ 10½ 4½ 2 5 ½ ½ ½ ½ ½
Thomas
Ewing ½ 1 1
J. Q. Adams 1
George B.
McClellan
Salmon P.
Chase
Franklin
Pierce
John T.
Hoffman
Stephen J.
Field
Thomas H.
Seymour
Candidates. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.
Horatio
Seymour 317
George H.
Pendleton 145½ 134½ 130 129½ 107½ 70½ 56½
Andrew
Johnson 4½ 4½ 5½ 5½ 6 10 5
Winfield S.
Hancock 30 48½ 56 79½ 113½ 137½ 144½ 135½ 142½ 135½
Sanford E.
Church
Asa Packer 26 26 26 22
Joel Parker 7 7 7 7 7 7 3½
James E.
English 6 16 19
James R.
Doolittle 12½ 13 13 12 12 12 12 12 12 12
Reverdy
Johnson
Thomas A.
Hendricks 89 81 84½ 82½ 70½ 80 87 107½ 121 132
F. P. Blair,
Jr. ½ ½ 13½ 13
Thomas
Ewing
J. Q. Adams
George B.
McClellan 1 ½
Salmon P.
Chase ½ ½ ½ ½ ½ 4
Franklin
Pierce 1
John T.
Hoffman 3 3
Stephen J.
Field 15 9 8
Thomas H.
Seymour 4 2
Necessary to choice 212
35. General Blair was nominated unanimously on the first ballot.
36. One Democratic elector was defeated, being cut by over 500 voters on a
local issue.
37. Commonly called “Greenbacks,” or “Legal Tender notes.”
38. Commonly called “National Bank notes.”
39. By Rand & McNally, Chicago, Ill., 1882.
40. This was partially done by the Legislature of Pennsylvania in 1881.
41. Act of March 2, 1850.
42. Act of January 19, 1866.
43. Senate doc. 181, 46th Congress.
44. Sec. 2, 258, Rev. Stat. U.S.
45. According to the affidavits of Samuel Howard and others, page 14.
46. See Report of Attorney-General United States, 1880–81.
47. Act of March 6, 1862.
48. Act of February 16, 1872.
49. Secs. 1 and 2, act of February 3, 1852.
50. See act of January 17, 1862.
51. Act of January 7, 1854, sec. 14.
52. Acts of Jan 21, 1853, and of January, 1855, sec. 29.
55. Act of January 14, 1854.
56. Sec. 106. Act March 6, 1852.
57. Enormous sums are, however, given to soldiers who were wounded during
the war, or who pretend that they were—for jobbery on an unheard of scale is
practised in connection with these pensions. It is estimated that $120,000,000
(24,000,000l.) will have to be paid during the present fiscal year, for arrears of
pension, and the number of claimants is constantly increasing, [The writer
evidently got these “facts” from sensational sources.]—Am. Pol.
58. The undeniable facts of the case were as we have briefly indicated above,
See, for example, a letter to the ‘New York Nation,’ Nov. 3, 1881.
59. Speech In New York, March 7, 1881.
60. ‘New York Tribune,’ Feb. 25, 1870.
61. Letter in New York papers, Feb. 20, 1875.
62. Mr. George William Curtis, in ‘Harper’s Magazine,’ 1870.
63. Article I. sect. vi. 2.
64. ‘Commentaries,’ I. book iii. sect. 869.
65. [These are mere traditions tinged with the spirit of some of the assaults
made in the “good old days” even against so illustrious a man as Washington.—Am.
Pol.]
66. Mr. Watterson, formerly a distinguished member of Congress, is the
author of the “tariff for revenue only” plank in the Democratic National Platform of
1880, and is now, as he has been for years, the chief editor of the Louisville Courier
Journal.
67. American, 707; scattering 989.
68. In Connecticut, the vote for Sheriff is taken. In New York, the average vote
on four of the five State officers chosen, excluding Secretary of State. In Nebraska,
Democratic and Anti-Monopoly vote combined on Judge.
69. Scattering, 106.
70. In these States the vote on Lieutenant-Governor was taken, as being from
special causes, a fairer test of party strength. In the others the principal State
officer was taken. Where State officers were not elected, the Congressional vote
was taken. In Georgia, Congressmen-at-Large was taken.
71. The vote for Chief Judge.
72. The Regular and Independent Republican vote is combined.
73. Vote of the two Democratic candidates is combined.
74. One vote lacking in each.
75. One vote lacking.
76. One vote lacking.
77. 3 votes lacking.
78. Upon the resolution of Mr. Wythe, which proposed, “That the committee
should ratify the constitution, and that whatsoever amendments might be deemed
necessary should be recommended to the consideration of the congress, which
should first assemble under the constitution, to be acted upon according to the
mode prescribed therein.”
79. In answer to an address of Governor Eustis, denouncing the conduct of the
peace party during the war, the House of Representatives of Massachusetts, in
June, 1823, say, “The change of the political sentiments evinced in the late
elections forms indeed a new era in the history of our commonwealth. It is the
triumph of reason over passion; of patriotism over party spirit. Massachusetts has
returned to her first love, and is no longer a stranger in the Union. We rejoice that
though, during the last war, such measures were adopted in this state as
occasioned double sacrifice of treasure and of life, covered the friends of the nation
with humiliation and mourning, and fixed a stain on the page of our history, a
redeeming spirit has at length arisen to take away our reproach, and restore to us
our good name, our rank among our sister states, and our just influence in the
Union.
“Though we would not renew contentions, or irritate wantonly, we believe that
there are cases when it is necessary we should ‘wound to heal.’ And we consider it
among the first duties of the friends of our national government, on this return of
power, to disavow the unwarrantable course pursued by this state, during the late
war, and to hold up the measures of that period as beacons; that the present and
succeeding generations may shun that career which must inevitably terminate in
the destruction of the individual or party who pursues it; and may learn the
important lesson, that, in all times, the path of duty is the path of safety; and that it
is never dangerous to rally around the standard of our country.”
80. 2d Dodson’s Admiralty Reports, 48. 13th Mass. Reports, 26.
81. It appears at p. 6 of the “Account” that by a vote of the House of
Representatives of Massachusetts, (260 to 290) delegates to this convention were
ordered to be appointed to consult upon the subject “of their public grievances and
concerns,” and upon “the best means of preserving their resources,” and for
procuring a revision of the constitution of the United States, “more effectually to
secure the support and attachment of all the people, by placing all upon the basis
of fair representation.”
The convention assembled at Hartford on the 15th December, 1814. On the
next day it was
Resolved, That the most inviolable secrecy shall be observed by each member
of this convention, including the secretary, as to all propositions, debates, and
proceedings thereof, until this injunction shall be suspended or altered.
On the 24th of December, the committee appointed to prepare and report a
general project of such measures as may be proper for the convention to adopt,
reported among other things,—
“1. That it was expedient to recommend to the legislatures of the states the
adoption of the most effectual and decisive measures to protect the militia of the
states from the usurpations contained in these proceedings.” [The proceedings of
Congress and the executive, in relation to the militia and the war.]
“2. That it was expedient also to prepare a statement, exhibiting the necessity
which the improvidence and inability of the general government have imposed
upon the states of providing for their own defence, and the impossibility of their
discharging this duty, and at the same time fulfilling the requisitions of the general
government, and also to recommend to the legislatures of the several states to
make provision for mutual defence, and to make an earnest application to the
government of the United States, with a view to some arrangement whereby the
state may be enabled to retain a portion of the taxes levied by Congress, for the
purpose of self-defence, and for the reimbursement of expenses already incurred
on account of the United States.
“3. That it is expedient to recommend to the several state legislatures certain
amendments to the constitution, viz.,—
“That the power to declare or make war, by the Congress of the United States,
be restricted.
“That it is expedient to attempt to make provision for restraining Congress in
the exercise of an unlimited power to make new states, and admit them into the
Union.
“That an amendment be proposed respecting slave representation and slave
taxation.”
On the 29th of December, 1814, it was proposed “that the capacity of
naturalized citizens to hold offices of trust, honor, or profit ought to be restrained,”
&c.
The subsequent proceedings are not given at large. But it seems that the report
of the committee was adopted, and also a recommendation of certain measures (of
the character of which we are not informed) to the states for their mutual defence;
and having voted that the injunction of secrecy, in regard to all the debates and
proceedings of the convention, (except so far as relates to the report finally
adopted,) be continued, the convention adjourned sine die, but as was supposed, to
meet again when circumstances should require it.
82. I refer to the authority of Chief Justice Marshall in the case of Jonathan
Robbins. I have not been able to refer to the speech, and speak from memory.
83. In this extended abstracts are given and data references omitted not
applicable to these times.
84. Speech at the Tabernacle, New York, February 10, 1843, in public debate
on this resolution:—
Resolved, That a Protective Tariff is conducive to our National Prosperity.
Affirmative: Joseph Blunt,

Horace Greeley.
Negative: Samuel J. Tilden,

Parke Godwin.
From Greeley’s “Recollections of a Busy Life.”

85. All the series were published in 1860 by Follet, Foster & Co., Columbus,
Ohio.

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Economics 12th Edition Arnold Test

1. According to Keynes, what households plan to save

3. If total production is greater than total expenditures,

5. If people buy more than has been produced,

6. When the economy is in equilibrium,

7. When there is economy-wide equilibrium, there is a tendency for

9. If total production is less than total expenditures, then business firms

12. Refer to Exhibit 10-1. At all points on the 45-degree line,

13. Refer to Exhibit 10-1. Equilibrium Real GDP occurs at

14. Refer to Exhibit 10-1. At Q3,

15. Refer to Exhibit 10-1. At Q1,

19. Consumption and disposable income are

22. Refer to Exhibit 10-2. Equilibrium Real GDP occurs at

23. Refer to Exhibit 10-2. At M,

27. Total production

28. When total production is greater than total expenditures,

39. Keynes believed that saving is

40. Keynes believed that investment is

41. Keynes believed that

42. Which of the following statements is false?

51. Here is a consumption function: C = C0 + MPC(Yd). The C0 term is usually defined as

53. Here is a consumption function: C = C0 + MPC(Yd). If C0 = $200, then we know that

56. The larger the marginal propensity to save,

62. When the MPC = 0.9, the multiplier is

64. When the MPC = 0.6, the multiplier is

65. How is the multiplier expressed in terms of the MPS?

67. Keynes argued that

68. Keynes assumed consumption is

73. Refer to Exhibit 10-3. The multiplier is

74. Which of the following is not an aspect of Keynesian economics?

75. If the multiplier is 5, then the MPC must be

79. Refer to Exhibit 10-4. Marginal propensity to consume is equal to

91. The more firms that pay efficiency wages, the

92. According to efficiency wage models, labor productivity depends on

93. Which of the following statements is true?

95. For Say's law to hold in a money economy,

100. Which of the following statements is false?

104. Which of the following statements is false?

109. Which of the following statements is true?

111. Which of the following is true?

118. If consumption is greater than disposable income, it follows that

122. The answer is: 1/(1 - MPC). What is the question?

128. The Keynesian aggregate supply curve is

130. According to Keynes, the private sector (by itself)

133. John Maynard Keynes was a very famous economist from

138. Refer to Exhibit 10-6. If government purchases decrease, it follows that

139. Refer to Exhibit 10-6. If investment increases, it follows that

141. John Maynard Keynes was the son of

143. Most economists think that the Keynesian position is that

144. Which of the following is a characteristic of consumption according to Keynes?

148. In the TE-TP framework, total production

151. Here is a consumption function: C = C0 + MPC(Yd). If C0 = $300, then we know that

154. Refer to Exhibit 10-8. The marginal propensity to consume (MPC) is

155. Refer to Exhibit 10-8. The marginal propensity to save (MPS) is

156. Refer to Exhibit 10-8. The multiplier is

157. Refer to Exhibit 10-8. The consumption function is

159. Refer to Exhibit 10-8. Autonomous consumption (Co) is equal to

ANS: T PTS: 1 DIF: Difficulty: Moderate

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Moderate

ANS: T PTS: 1 DIF: Difficulty: Moderate

ANS: F PTS: 1 DIF: Difficulty: Moderate