In the Short-Run Keynesian Model Where the Marginal Propensity to Consume

question 77

Multiple Choice

In the short-run Keynesian model where the marginal propensity to consume is 0.5, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, government purchases must be:

• A)increased by $1 billion.
• B)decreased by $1 billion.
• C)decreased by $0.5 billion.
• D)decreased by $2 billion.

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Definitions:

Ernst & Ernst v. Hochfelder

A 1976 Supreme Court case establishing that plaintiffs in securities fraud cases must prove that the defendant acted with scienter, or intent to deceive, manipulate, or defraud.

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SEC Rule 10b-5

A regulation enacted by the U.S. Securities and Exchange Commission that prohibits fraud in the sale of securities.

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