Macro Graded Assignment #7

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The table gives you information about the economy of Bluejay Island. Disposable income 0 100 200 300 Consumption expenditure 25 100 175 250 What is the marginal propensity to​ save? The marginal propensity to save is _____.

0.25

The figure illustrates the components of aggregate planned expenditure on Turtle Island. Turtle Island has no imports or​ exports, no income​ taxes, and the price level is fixed. Calculate autonomous expenditure and the marginal propensity to consume in Turtle Island. Autonomous expenditure is ​$ _____ billion. The marginal propensity to consume is _____.

2 billion 0.6

In an economy without taxes and​ imports, an increase in investment of​ $50 billion increases equilibrium expenditure by ​$125 billion. What are the values of the multiplier and the slope of the AE​ curve? The multiplier is _____ and the slope of the AE curve is _____.

2.5 (125/50) 0.6 The multiplier = 1/​(1-Slope of AE curve​)

If real GDP and aggregate expenditure are less than equilibrium​ expenditure, what happens to​ firms? inventories? How do firms change their​ production? And what happens to real​ GDP? ​Firms' inventories _____. ... so they ​ ______ production, and real GDP​ ______. A. increase; decreases B. decrease; decreases C. increase; increases D. decrease; increases

decrease C. increase; increases

The table gives the elements of planned expenditure. Real GDP 0 1 Consumption expenditure 0.4 2.1 Investment 0.5 0.5 Government expenditure 0.5 0.5 Exports 0.9 0.9 Imports 0 0.5 When real GDP is ​$1 ​trillion, what are aggregate planned​ expenditure, autonomous​ expenditure, and induced​ expenditure? When real GDP is ​$1 ​trillion, aggregate planned expenditure is ​$ _____ trillion. Autonomous expenditure is ​$ _____ trillion. Induced expenditure is ​$ _____ trillion.

3.5 2.3 1.2

Suppose that the economy is at full​ employment, the price level is​ 100, and the multiplier is 2. Investment increases by ​$200 billion. What is the change in equilibrium expenditure if the price level remains at​ 100? The change in equilibrium expenditure is ​$ _____ billion.

400 billion

An economy has a fixed price​ level, no​ imports, and no income taxes. MPC is 0.8​, and real GDP is ​$300 billion. Businesses increase investment by ​$2 billion. Calculate the multiplier and the change in real GDP. The multiplier is _____. The increase in real GDP is ​$_____ billion.

5 The multiplier equals 1/(1-Slope of AE​ curve). 10 billion

The figure illustrates the components of aggregate planned expenditure on Turtle Island. Turtle Island has no imports or​ exports, no income​ taxes, and the price level is fixed. What is aggregate planned expenditure when real GDP is​ $6 billion? What is happening to inventories when real GDP is​ $6 billion? Inventories are _____. What is happening to inventories when real GDP is​ $4 billion? Inventories are _____.

5.6 billion increasing decreasing

In an economy with a fixed price​ level, autonomous spending is ​$20 trillion and the slope of the AE curve is 0.75. What is the equation of the AE​ curve? The equation is​ _______. A. AE​ = 20 ​+ 0.25Y B. AE​ = 20 ​+ 0.75Y C. AE​ = 0.75Y - 20 D. AE​ = 0.25Y - 20 Calculate equilibrium expenditure. Equilibrium expenditure is ​$ _____ trillion. Calculate the multiplier. The multiplier is _____. Calculate the shift of the aggregate demand curve if investment increases by​ $1 billion The aggregate demand curve shifts rightward by ​$ _____ billion.

B. AE​ = 20 ​+ 0.75Y 80 trillion (Equilibrium expenditure occurs when aggregate planned expenditure equals real GDP. Using the formula AE​ = 20 ​+ 0.75Y​ , set aggregate planned expenditure equal to ​Y, and solve for Y.) 4 4 billion (When investment​ increases, the aggregate demand curve shifts rightward by an amount equal to the change in investment times the multiplier.)

Which components of aggregate expenditure are influenced by real​ GDP? A. Consumption​ expenditure, government​ expenditure, investment, and imports B. Consumption expenditure and imports C. Consumption​ expenditure, investment, and imports D. Investment, exports, and imports

B. Consumption expenditure and imports Consumption expenditure and imports are influenced by real GDP. When real GDP​ increases, consumption expenditure and imports increase.

The components of aggregate expenditure include I. imports. II. consumption. III. government transfer payments. A. II and III B. I and II C. II only D. I, II and III

B. I and II

Which of the following equations is incorrect​? A. (DeltaYD*MPS​) ​+ ​(DeltaYD*MPC​) ​= DeltaYD B. MPC + MPS​ =DeltaYD C. DeltaYD*MPS ​= DeltaS D. DeltaC ​+ DeltaS​ = DeltaYD

B. MPC + MPS​ =DeltaYD

The multiplier is the amount by which a change in​ ______ expenditure is magnified or multiplied to determine​ ______. A. autonomous; the change in investment B. autonomous; the change in equilibrium expenditure and real GDP C. consumption; the change in equilibrium expenditure and real GDP D. consumption; the change in investment To calculate the​ multiplier, we divide​ ______ by​ ______. A. the change in equilibrium​ expenditure; autonomous expenditure B. the change in equilibrium​ expenditure; the change in autonomous expenditure C. equilibrium​ expenditure; autonomous expenditure D. equilibrium​ expenditure; the change in autonomous expenditure

B. autonomous; the change in equilibrium expenditure and real GDP B. the change in equilibrium​ expenditure; the change in autonomous expenditure

If autonomous expenditure decreases with no change in the price​ level, what happens to the AE curve and the AD​ curve? Which curve shifts by an amount that is determined by the multiplier and​ why? The​ ______ curve shifts downward by an amount equal to the decreases in autonomous expenditure. The​ ______ curve shifts leftward by an amount equal to the decreases in autonomous expenditure times the multiplier because the​ ______ at each price level. A. AD​; AE​; AE curve plots equilibrium expenditure B. AE​; AD​; AD curve plots aggregate planned expenditure C. AE​; AD​; AD curve plots equilibrium expenditure D. AD​; AE​; AE curve plots aggregate planned expenditure Illustrate the effect of a change in autonomous expenditure. Investment decreases by​ $0.5 trillion, and the multiplier is 4. Draw a new aggregate demand curve that shows the effect of the decrease in investment. Label it AD1. Draw a point to indicate the quantity of real GDP demanded following the decrease in investment when the price level is 115. Label it B.

C. AE​; AD​; AD curve plots equilibrium expenditure Shift AD Line 2 trillion (0.5*4) to the left. Point B is at (12, 115)

Planned saving​ + Planned consumption expenditure​ = ______. A. Aggregate income B. Expected future income minus Disposable income C. Disposable income D. Wealth

C. Disposable income

The U.S. and​ China's Savings Problems Last year China saved about half of its gross domestic product while the United States saved only 13 percent of its national income. The contrast is even starker at the household levellong dasha personal saving rate in China of about 30 percent of household​ income, compared with a U.S. rate that dipped into negative territory last year ​(minus​0.4% of​ after-tax household​ income). Similar extremes show up in the consumption shares of the two economies. Read the news​ clip, then answer the following questions. The MPS in the United States is lower than the MPS in​ China, and the MPC in the United States is higher than the MPC in China. A reason for the difference in the values between the countries may be​ ______. A. incomes are higher in the United States B. the trade imbalance between China and the United States C. U.S. consumers are more confident about the future D. the larger size of​ China's population

C. U.S. consumers are more confident about the future

You observe that unplanned inventories are increasing. You predict that there will be​ _______. A. an expansion B. a business cycle C. a recession D. a peak

C. a recession

How do the marginal propensity to​ consume, the marginal propensity to​ import, and the income tax rate influence the​ multiplier? The multiplier increases when the marginal propensity to consume _____. . The multiplier increases when the marginal propensity to import​ ______ or the income tax rate​ ______. A. decreases; increases B. increases; increases C. decreases; decreases D. increases; decreases

C. decreases; decreases

According to the Keynesian​ theory, the typical firm A. changes its prices frequently in response to fluctuations in aggregate demand. B. lowers its prices if sales exceed production. C. does not change its prices immediately when aggregate demand fluctuates. D. lowers its prices when inventories are decreasing.

C. does not change its prices immediately when aggregate demand fluctuates.

Equilibrium expenditure is the level of aggregate expenditure that occurs when​ ______. A. real GDP is maximized B. inventory holdings are minimized C. aggregate planned expenditure is maximized D. aggregate planned expenditure equals real GDP Choose the correct statement. A. Equilibrium expenditure occurs at all points along the AE curve. B. Equilibrium expenditure occurs at the point at which the AE curve intersects the x​-axis. C. The level of aggregate expenditure that occurs where the AE curve intersects the 45 degrees line is equilibrium expenditure. D. Equilibrium expenditure occurs at all points along the 45 degrees line.

D. aggregate planned expenditure equals real GDP C. The level of aggregate expenditure that occurs where the AE curve intersects the 45 degrees line is equilibrium expenditure.

What is the​ multiplier? The multiplier is the amount by which the change in​ ______ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP. What does it​ determine? For every dollar increase in​ ______ expenditure, the multiplier determines the increase in real GDP. A. autonomous; induced B. induced; autonomous C. induced; induced D. autonomous; autonomous Why does it​ matter? The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to​ ______. A. make inventories equal to their target levels B. increase real GDP by a given amount C. minimize taxes and maximize transfer payments D. maximize real GDP

D. autonomous; autonomous B. increase real GDP by a given amount

How does a change in the price level influence the AE curve and the AD​ curve? Use the graphs to answer this question. The left graph shows an​ economy's aggregate planned expenditure curve. The right graph shows its aggregate demand curve. Equilibrium expenditure is​ $12 trillion and the price level is 110. Suppose the price level falls to 90 and the new equilibrium expenditure is​ $13 trillion. In the left​ graph, draw the AE curve that shows the effect of this event. Label it. Draw a point to show the new equilibrium expenditure. In the right​ graph, draw a point on the AD curve at the new equilibrium real GDP and price level. Draw an arrow on the curve that shows the effect of the fall in price level.

Left graph: AE1 is shifted upwards so there is an intersection at (13, 13) Right Graph: AD does not move, point at (13, 90) arrow goes from first point to the second, on AD

In an​ economy, when disposable income increases from​ $400 to​ $500, consumption expenditure increases from ​$450 billion to ​$525. Calculate the marginal propensity to​ consume, the change in​ saving, and the marginal propensity to save. The marginal propensity to consume is _____. When disposable income increases from​ $400 billion to​ $500 billion, saving increases by ​$_____ billion. The marginal propensity to save is _____.

0.75 25 billion 0.25

The spreadsheet lists the components of aggregate planned expenditure at different levels of real GDP in billions of dollars. A. B. C. D. E. F. G. 1. Y. C. I. G. X. M. 2 A. 100. 110. 50. 60. 60. 15. 3 B. 200. 170. 50. 60. 60. 30. 4 C 300. 230. 50. 60. 60. 45. 5 D 400. 290. 50. 60. 60. 60. 6 E 500. 350. 50. 60. 60. 75. 7 F 600. 410. 50. 60. 60. 90. Calculate autonomous expenditure. Autonomous expenditure is ​$_____ billion. Calculate the marginal propensity to consume. The marginal propensity to consume is _____.

220 billion 0.6

The spreadsheet lists the components of aggregate planned expenditure at different levels of real GDP in billions of dollars. What is aggregate planned expenditure when real GDP is​ $200 billion? If real GDP is​ $200 billion, explain the process that moves the economy toward equilibrium expenditure. Production​ ______ in response to​ ______ . A. increases; an unplanned decrease in inventories B. decreases; a planned decrease in inventories C. increases; an increase in consumption expenditure D. decreases; real GDP being less than aggregate planned expenditure If real GDP is​ $500 billion, explain the process that moves the economy toward equilibrium expenditure. When real GDP is $500 ​billion, aggregate planned expenditure is $ 445 billion. Production​ ______ in response to​ ______ . A. increases; a planned increase in inventories B. decreases; an unplanned increase in inventories C. increases; real GDP exceeding aggregate planned expenditure D. decreases; a decrease in consumption expenditure

310 billion A. increases; an unplanned decrease in inventories B. decreases; an unplanned increase in inventories

An economy has a fixed price​ level, no​ imports, and no income taxes. MPC is 0.5​, and real GDP is ​$300 billion. Businesses increase investment by ​$10 billion. Calculate the new level of real GDP and explain why real GDP increases by more than ​$10 billion. The new level of real GDP is ​$ _____ billion. Real GDP increases by more than ​$10 billion because the increase in investment​ _______. A. increases the marginal propensity to consume B. enables firms to produce more output C. increases exports D. induces an increase in consumption expenditure

320 billion D. induces an increase in consumption expenditure

An economy has no imports and no taxes. The marginal propensity to save is 0.8. A​ ______ increase in autonomous expenditure increases equilibrium expenditure by​ $60 billion. The multiplier is​ ______. A. $48 ​billion; 1.25 B. $19 ​billion; 48 C. $192 ​billion; 0.31 D. $75 ​billion; 1.25

A. $48 ​billion; 1.25

An economy with no income taxes or imports has a marginal propensity to consume of 0.75. The multiplier in the long run is​ _______. A. 0 B. 1.33 C. greater than 1.33 & less than 4 D. 4

A. 0 In the long​ run, the economy is at a​ full-employment equilibrium. When investment​ increases, the economy moves to an above​ full-employment equilibrium. The money wage rate rises and​ short-run aggregate supply decreases until the economy returns to a​ full-employment equilibrium.

How does equilibrium expenditure come​ about? What adjusts to achieve​ equilibrium? Equilibrium expenditure comes about because firms change their​ ______ in response to unplanned changes in​ ______. A. production; inventories B. prices; production C. inventories; production D. prices; inventories Draw a point on the AE curve at which planned expenditure exceeds real GDP. Label it 1. Draw a point on the AE curve at which real GDP exceeds planned expenditure. Label it 2. When aggregate planned expenditure is less than real​ GDP, inventories are ​_______, so production​ ______ and inventories return to their target level as the economy moves to equilibrium expenditure. A. above target​; decreases B. below target​; increases C. below target​; decreases D. above target​; increases

A. production; inventories Point 1 - (11, 12) Point 2 - (15, 14) A. above target​; decreases

Suppose that the economy is at full​ employment, the price level is​ 100, and the multiplier is 3. Investment increases by ​$100 billion. What is the immediate change in the quantity of real GDP​ demanded? Use the graph to answer this question. Draw the new AD curve. Label it. Draw a point to show the immediate change in the quantity of real GDP demanded. Label it 1. In the short​ run, does real GDP increase by more​ than, less​ than, or the same amount as the immediate change in the quantity of real GDP​ demanded? Answer by drawing a point at the new​ short-run macroeconomic equilibrium. Label it 2.

AD1 Shifts to the right 1 is at (1300, 100) 2 is at (1150, 130)

The table gives the aggregate expenditure schedule. Equilibrium expenditure is equal to​ _______. A. $ 6 trillion B. $3 trillion C. $5 trillion D. $4 trillion

B. $3 trillion

For a given increase in aggregate​ demand, the steeper the slope of the​ short-run aggregate supply​ curve, the​ ______ is the increase in the price level and the​ ______ is the multiplier effect on real GDP in the short run. A. smaller; larger B. larger; smaller C. smaller; smaller D. larger; larger

B. larger; smaller

A fall in the price level​ _______. A. shifts the AD curve rightward and brings a movement up along the AE curve B. shifts the AE curve upward and brings a movement down along the AD curve C. shifts the AE curve downward and brings a movement up along the AD curve D. shifts the AD curve leftward and brings a movement down along the AE curve

B. shifts the AE curve upward and brings a movement down along the AD curve

The marginal propensity to import is equal to​ _______. A. disposable income minus consumption expenditure minus saving divided by real GDP B. the change in imports divided by the change in real​ GDP, other things remaining the same C. imports minus exports D. the change in net imports divided by the change in disposable​ income, other things remaining the same

B. the change in imports divided by the change in real​ GDP, other things remaining the same

How do we calculate the effects of real GDP on consumption expenditure and imports by using the marginal propensity to consume and the marginal propensity to​ import? To calculate the effect of real GDP on consumption​ expenditure, we need to know​ ______ . A. both the marginal propensity to consume and the marginal propensity to import B. only the effect of real GDP on disposable income C. both the marginal propensity to consume and the effect of real GDP on disposable income D. only the marginal propensity to consume To calculate the effect of real GDP on​ imports, we need to know​ ______ . A. both the marginal propensity to import and the marginal propensity to consume B. both the marginal propensity to import and the effect of real GDP on disposable income C. only the marginal propensity to import D. only the effect of real GDP on disposable income

C. both the marginal propensity to consume and the effect of real GDP on disposable income C. only the marginal propensity to import

Explain the difference between induced consumption expenditure and autonomous consumption expenditure. Induced expenditure is​ ______. Autonomous expenditure is​ ______. A. the expenditure on goods and services even when real GDP is​ zero; any expenditure that increases as real GDP increases B. the sum of​ investment, government​ expenditure, and​ exports, which does not vary with real​ GDP; consumption expenditure minus​ imports, which varies with real GDP C. consumption expenditure minus​ imports, which varies with real​ GDP; the sum of​ investment, government​ expenditure, and​ exports, which does not vary with real GDP D. expenditure that decreases as real GDP​ increases; expenditure that increases as real GDP increases Why​ isn't all consumption expenditure induced​ expenditure? All consumption is not induced expenditure because​ ______. A. some purchases are made using credit cards B. even with no income a person enjoys some luxuries C. even a person with no income must buy​ life's necessities D. consumers save

C. consumption expenditure minus​ imports, which varies with real​ GDP; the sum of​ investment, government​ expenditure, and​ exports, which does not vary with real GDP C. even a person with no income must buy​ life's necessities

What is the relationship between aggregate planned expenditure and real GDP at equilibrium​ expenditure? At equilibrium​ expenditure, aggregate planned expenditure​ ______ real GDP. A. might exceed or be less than but is moving toward B. exceeds but is moving toward C. equals D. is less than but is moving toward The table is an​ economy's aggregate expenditure schedule. Real GDP 0 3 6 Aggregate planned expenditure 1.0 2.5 4.0 Draw the AE curve and label it. Draw a point at equilibrium expenditure.

C. equals Line endpoints: (0, 1) and (6, 4) (2, 2)

In the Keynesian model of aggregate​ expenditure, real GDP is determined by the A. level of taxes. B. price level. C. level of aggregate demand. D. level of aggregate supply.

C. level of aggregate demand.

Collapsing Savings Rate Before​ 1984, the U.S. savings rate held steady for​ decades, though it dipped during the Great Depression and rose sharply during​ WWII, when there was little to buy besides war bonds. The rate dipped briefly again after​ WWII, and then rose steadily until​ 1984, when saving was 10.2 percent of income. Since​ 1984, saving has fallen to between 2 percent and 3 percent of income. Read the news​ clip, then answer the following questions. The MPS in the United States is​ ______ today than it was before​ 1984, and the MPC in the United States is​ ______ today than it was before 1984. A. higher; higher B. lower; lower C. lower; higher D. higher; lower Possible reasons for the difference could be​ _______. A. lower expected future income B. a decrease in expected future wealth C. a lower return to saving D. a higher return to saving

C. lower; higher C. a lower return to saving

The table gives information about a consumption function. Disposable income 0 100 200 300 Consumption expenditure 50 125 200 275 Draw the consumption function and label it CF. The level of disposable income at which all disposable income is consumed is ​$ _____ million.

Literally just plot the points. 200 million


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