Economics M4

John Maynard Keynes expressed His ideas about the macro economy and attacked classical economics in his book

The General Theory of Employment, Interest, and Money

If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by:

$9 billion

other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of US GDP, then

US real GDP will fall

The table gives data for a private closed economy. all figures are in billions of dollars. The MPC and multiplier are, respectively,

0.75 and 4

if the marginal propensity to consume in an economy is 0.8, net exports are zero, and government spending is $33 billion at each level of real GDP, The slope of the economy's aggregate expenditure schedule will be

0.8

refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when

GDP is $60 billion.

An inflationary expenditure gap is the amount by which:

aggregate expenditures exceed the full-employment level of GDP.

In 2008 during the Great Recession, the Federal government provided tax rebate checks to taxpayers in the hope that:

C would shift up

Injections into the income-expenditure stream include

Government purchases and exports

John Maynard Keynes developed the aggregate expenditures model in order to understand the

Great Depression

in a recessionary expenditure gap, the equilibrium level of real GDP is

Less than full-employment GDP

in a mixed open economy, The equilibrium GDP is determined at the point where

Sa + M + T = Ig + X + G

Net exports are negative when:

a nation's imports exceed its exports.

The recessionary expenditure gap associated with the recession of 2007-2009 resulted from:

a rapid decline in investment spending.

Saving is always equal to:

actual investment

planned investment plus unintended increases in inventories equals

actual investment

saving is always equal to

actual investment

In a private closed economy , __ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where __ investment is equal to saving

actual; planned

at equilibrium real GDP in a private closed economy

aggregate expenditures and real GDP are equal.

recessionary expenditure gap exists If the aggregate expenditure schedule lies

below the 45 degree line at the full-employment GDP

to close an inflationary gap of $20 billion in Okami with a marginal propensity to consume of 0.8, it would be necessary to

decrease the aggregate expenditures schedule by $20 billion

refer to the diagrams. Curve A is an investment ___ curve, and curve B is an investment ___

demand; schedule

In the aggregate expenditures model, we note that an increase in government purchases, G, and an increase in lump-sum taxes, T, of the same amount will have

different effects on GDP, with the change in G having a larger impact than the change in T

The multiplier effect demonstrates that

equal increases in government spending and taxes increase the equilibrium GDP

in the aggregate expenditures model, the equilibrium GDP is not necessarily

equal to the full employment GDP

A private closed economy includes:

households and businesses, but not government or international trade.

If the multiplier in an economy is 5, a $20 billion increase in net exports will:

increase GDP by $100 billion.

if MPC = 0.5, A simultaneous increase in both taxes and government spending of $20 will

increase GDP by $20

if MPC = 0.5, a simultaneous increase in both taxes and government spending of $20 will

increase GDP by $20

If an unintended increase in business inventories occurs at some level of GDP, then GDP

is too high for equilibrium.

the equilibrium level of GDP is associated with

no unintended changes in inventories.

at the equilibrium GDP for a private Open economy, net exports may be either

positive or negative

the aggregate expenditures model is built upon the assumption:

prices are fixed

in the aggregate expenditures model, it is assumed that investment does not change when

real GDP changes

in the united states from 1929 to 1933,

real GDP declined by 27 percent and the unemployment rate rise to 25 percebt

If the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately

reduce consumption by $3 billion

A recessionary expenditure gap is the amount by which

the full employment GDP exceeds the level of aggregate expenditures

when aggregate expenditure is greater than GDP

then there will be an unplanned decrease in inventories and GDP will increase