Aggregate Expenditures Model

Calculate Ye for Country A using the following information: A= $100, G = $80, I = $150, NX = −$50, T = $125, and MPC = 0.75.

$745 Reason: To find Ye, you need two equations Y=AE and AE = A + mpc(Y−T) + I + G + NX. Substitute the numbers from the question to get AE = 100 + 0.75(Y - 125) + 150 + 80 + −50. Simplify this expression to get AE = 0.75Y + 186.25. Now, set AE = Y to get Y = 0.75Y + 186.25. Solving for Y, you get $745.

Given the equilibrium equation: 'Y_e=(1/(1-MPC))(A+I+G+NX)+((-MPC)/(1-MPC))T' which term represents the tax multiplier?

'(-MPC)/(1-MPC)'

Given the equilibrium equation: 'Y_e=(1/(1-MPC))(A+I+G+NX)+((-MPC)/(1-MPC))T' which term represents the GDP or expenditures multiplier?

'1/(1-MPC)'

With an MPC of 0.5, the tax multiplier will equa

-1

With an MPC of 0.75, the tax multiplier will equal

-3

If the multiplier equals 4, an increase in investment spending of $10 billion will result in an overall increase in real GDP of $

-4 billion

If taxes decrease by $4 billion and real GDP increases by $20 billion, the tax multiplier is

-5

Mathematically, the tax multiplier equals:

-MPC/(1 - MPC).

Click and drag on elements in order Starting in equilibrium with real GDP equal to $500 billion gross investment equal to $10 billion a marginal propensity to consume of 0.8 and an expenditures multiplier of 5. Suppose gross investment increases by $20 billion. Arrange the outcomes below in the order that they occur according to the aggregate expenditures model.

1. the increase in expenditures leads to the increase output 2. increased output means higher income some of which is spent 3. there is a further increase in aggregate expenditures 4. expenditures and output rise one after the other 5. the economy arrives new equilibrium where real gdp and aggregate expenditure are both equal

You are an economist in the country of Econlandia trying to estimate the equilibrium level of output. You have the following information: C = A + 0.4(Y−T) A = $75 I = $200 G = $150 NX = −-$75 T = $200 The equilibrium level of output in Econlandia is

450

If investment spending increases by $100 billion and real GDP increases by $500 billion, the expenditures multiplier is

5

Starting in equilibrium with real GDP equal to $600 billion gross investment equal to $12 billion a marginal propensity to consume of 0.8 and an expenditures multiplier of 5. If gross investment decreases by $5 billion the aggregate expenditures schedule shifts down by $ billion. The new equilibrium GDP will be $ billion.

5,575

The formula for consumption is:

A + MPC x (Y - T).

Starting in equilibrium with real GDP equal to $1000 billion gross investment equal to $50 billion a marginal propensity to consume of 0.75 and an expenditures multiplier of 4. If gross investment decreases by $25 billion the aggregate expenditures schedule shifts vertically by $--. The new equilibrium GDP will be $6--- billion.

Blank 1: -25, -twenty five, negative twenty-five, or negative twenty five Blank 2: 900 or nine hundred

Whenever a law with economic effects is proposed, whether it's a spending bill a bill to increase the gasoline tax or a bill to reform the U.S. health care system, the task of determining the likely impacts of the bill is given to the:

Congressional Budget Office.

Which of the following variables influence investment decisions? (Choose all that apply.)

Expected rate of return & interest rate

A change in interest rates matters most to ________ when making economic decisions.

FIRMS

The expenditures multiplier times the initial change in expenditures equals:

a change in real GPD

Due to the multiplier effect,:

an initial change in aggregate expenditure leads to a larger final change in real GDP.

Aggregate expenditures equals:

autonomous expenditure plus the marginal propensity to consume times income minus taxes plus gross investment plus government purchases plus net exports.

When taxes increase:

consumer expenditures fall. disposable income decreases.

Of the four categories of spending (consumption, gross investment, government purchases, and net exports) only - depends on income.

consumption

If the MPC equals 0.75, an increase in taxes of $5 billion will result in an overall decreaseBlank 1Blank 1 decrease , Correct Unavailable in real GDP of $3.75Blank 2Blank 2 3.75 , Incorrect Unavailable billion.

decrease, 15

The Congressional Budget Office:

determines the likely impacts of much legislation.

Investment demand is:

downsloping

The difference between expenditures at the full-employment level of output and expenditures when output is more than the full-employment level is called a(n) gap.

expansionary

If output is lower than the full-employment level,---- are too low.

expenditures

If output is higher than the full-employment level then:

expenditures are too high

When aggregate expenditures increase, the change in equilibrium real GDP is:

greater than the change in aggregate expenditures.

Assuming that net exports are independent of real GDP, the net exports schedule is:

horizontal.

if the MPC equals 0.8, a decrease in taxes of $2 billion will result in an overall in real GDP of $ billion.

increase, 8

Expected rate of return and interest rate are two factors that:

influence the investment decisions of firms.

If there is only consumption spending, the equilibrium level of real GDP is found at the:

intersection of the consumption schedule and the equilibrium line.

The multiplier effect causes the:

larger change in real GDP resulting from an increase in expenditures.

Higher taxes lead to:

less disposable income.

The (one word) can tell us how much changes in consumption gross investment government purchases or net exports can affect real GDP.

multiplier

When aggregate expenditures increase, the change in equilibrium real GDP is greater than the change in aggregate expenditures because of the:

multiplier effect

Interest rate changes:

play little if any role in government purchases.

Investment demand slopes downward because the:

quantity of investment demanded increases as interest rates fall.

The difference between expenditures at the full-employment level of output and expenditures when output is less than the full-employment level is called a(n)

recessionary

Use the graph above to answer the following question. The full-employment output level in Guilder is $10,000. Suppose now that Guilder's current real GDP is $8,000. This situation represents a(n) gap.

recessionary

A change in real GDP equals the --multiplier times the initial change in taxes.

tax

When using the aggregate expenditures model, if expenditures change:

the model will move to a new equilibrium.

Ordinarily, the Congressional Budget Office (CBO) does not know exactly what the correct multiplier for each type of spending. Therefore:

uses high estimate and low estimate

When graphing the investment demand, place the interest rate on the _ axis and the quantity of investment on the _ axis.

vertical, horizontal

If gross investment increases, it will shift the aggregate expenditures schedule:

vertically

investment government spending and net exports are affected by:

very different economic variables so any change to government policy will likely affect them differently.

The aggregate expenditures model has aggregate expenditures on the -- axis and real GDP on the -- axis.

y,x