ECON 201 Sapling Chapter 11

Suppose disposable income increases by 2000. As a result, consumption increases by 1500. The marginal propensity to save (MPS) is

.25

Suppose that Kim K decides to spend 30,000 on an American made purse instead of donating it to Haitian earthquake relief. Assume that the multiplier is 1.3. How much will GDP rise when Kim K buys her purse according to the multiplier affect

39000 more than; about the same as

Suppose disposable income increases by 2000. As a result, consumption increases by 1500. The increase from the savings resulting directly from this change in income is

500

Suppose disposable income increases by 2000. As a result, consumption increases by 1500. The marginal propensity to consume (MPC) is

.75

Suppose the island of Catslyvania experiences a recession. As a result consumers reduce spending on Kitty Chow and planned aggregate expenditures fall short of real GDP. As a result unplanned inventories in Kitty Chow will What is most likely to occur first at Kitty Chows firms during this period of recovery

increase Firms will sell off excess inventories before returning to increased production levels

Identify how planned investment will change in each scenario. Airwings, a commercial airline manufacturer, becomes optimistic about economic conditions after seeing reports of strong growth in consumer spending. The Federal Reserve announces an end to accommodative monetary policy, and is now implementing policy tools that will increase the real interest rate. In an effort to reduce constant budget deficits, Congress announces plans to increase the corporate income tax rate. A major recession has reduced consumption spending, which has hurt profit levels for Aston-Benz, a high-end car manufacturer.

increase decrease decrease decrease

Income and consumption changes for five people are shown in the table. Given this information, rank the marginal propensities to consume (MPC) for the five people from largest to smallest.

Calvin Derek Arnold Ed Basil

Suppose the least amount of goods and services Scott will consume in a year is 40,000 and he tends to save .30 of every dollar of disposable income he makes. Use the given line to graph Scott's consumption function for disposable income levels between 0 and 200,000

left endpoint at 40 right endpoint at 180

Slope of consumption function

marginal propensity to consume

What type of spending depends primarily on three factors; the interest rate, expected future level of real GDP, and the current production capacity

planned investment spending

he graph models an economy in equilibrium with a real GDP of $180 billion. Suppose that consumers' expectations about future incomes change, causing unplanned inventory investment to increase by $30 billion. Shift the planned aggregate expenditure (AE) line to show the effect of this change. This change will cause the equilibrium level of real GDP to This change will cause the equilibrium level of real GDP to

shift graph down by one (endpoint should be on 60) decrease -60 billion

Which of the statements best describes the paradox of thrift?

Households increase savings during recessions, which causes consumption to fall, aggregate expenditures to fall, and may possibly lead to or make worse a recession.

On the graph, please show the effect of an increase in the aggregate price level on aggregate planned spending, as shown by the aggregate expenditure (AE) curve (the other line is a 45° line). Then, answer the question. Why does the aggregate planned spending curve experience this kind of shift?

Move graph down As aggregate price levels change, aggregate spending shifts, and real GDP changes.

The accompanying graph represents the aggregate consumption function for the small island nation of pineapple paradise. The people expect their disposable incomes for pineapple paradise to increase. Use the graph to show an increase in consumption expenditure

New level of spending is 4000 Move the graph up

The multiplier (expenditure multiplier) is the ratio between which two measures

Total change in real GDP due to an autonomous change in aggregate spending and the size of the autonomous change in aggregate spending

The consumption function shows the relationship between consumption spending and

disposable income

Changes in consumption can be predicted by multiplying the change in ___ by the ____

disposable income marginal propensity to consume

The term inventories is best described as Actual investment spending tends to be different from planned investment spending. Which of the choices best explains why this is true?

goods that have been produced but remain unsold. Firms are unable to perfectly anticipate sales of their products.

The Bureau of Economic Analysis reported that, in real terms, overall consumer spending increased by $345.8 billion in 2015. If the marginal propensity to consume is 0.50, by how much will real GDP change in response? Enter your answer in billions of dollars. If there are no changes in autonomous spending other than the increase in consumer spending described in part a, and unplanned inventory investment, Iunplanned, decreases by $100 billion, what is the change in real GDP? Enter your answer in billions of dollars. GDP at the end of 2014 was $15,982.3 billion. If GDP were to increase by the amount calculated in part b, what would be the percentage increase in GDP? Round your answer to the nearest hundredth of a percent.

691.6 billion 491.6 billion 3.08%

Troll Island is a small island nation that recently experienced an autonomous change in aggregate expenditures (AE). AE increased by 3 billion, and the marginal propensity to consume on Troll Island is equal to 0.65. What is the change in Troll Island's real GDP after the increase in AE? Enter your answer in billions of dollars, rounded to one place after the decimal. For example, an answer of $2,500,000 should be entered as 2.5.

8.6 billion