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