Chapter 11
The multiplier effect suggests that
A ripple effect occurs from one person's initial spending, government spending $1 will create more than $1 increase in GDP, a tax cut will increase GDP by more than the amount of the initial tax cut
AN inflationary output gap is defined to be when the current level of output is
Above full employment GDP
Planned investment is the
Amount that firms decide to allocate the new capital resources and inventory accumulation
Actual investment is the
Amount that firms really allocated to new capital resources and inventory accumulation
One of reasons the government may choose to spend would be the
Beliefs about what citizens may need
The four components of aggregate expenditure (AE) are
Consumption, investment, government, and net export spending
How would the real exchange rate need to change to get aggregate expenditure to increase
Decrease
If tastes for foreign goods and services go up, then we would expect aggregate expenditure to
Decrease
If the foreign income decrease, then we might expect net export spending to
Decrease
A main reason the federal government may choose to spend would be the
Desire to achieve full-employment GDP
A recessionary output gap is defined to be when
Equilibrium aggregate expenditure is below full employment GDP
One of the major insights by the economist John Maynard Keynes about production was that
Firms may not produce all they can at a given price, but what they can sell
When PAE increases we expect that economy will be at ___ levels of equilibrium GDP
Higher
Which of the following conveys the correct relationship between production and inventories
If planned inventories > actual inventories then increase production
Economist John Maynard Keynes noted one of the main contributors to the Great Depression in the 1930s was
Insufficient spending causing below natural rate output
Which of the following is not a direct determinant of net export spending
Interest Rates
Which of the following could be a cause of consumption decreasing?
Interest rates increase
When we compare PAE and actual output (Y) if PAE is greater than Y we expect that
Inventories to decrease
We define autonomous expenditure to be expenditure that
Is unaffected by the current level of income in the economy
The economist in the 1930s who credited with key insights into causes of economic downturns was
John Maynard Keynes
The effect of government spending or tax cuts on national income is measured by the
Multiplier
Domestic income has a ___ relationship with net export spending
Negative
What type of relationship does the real interest rate have wit respect to Investment spending
Negative relationship
Transfer payments are payments that are
Payments to households that can then be spent by the households
When we say investment in economics we are talking about
Physical capital
Which of the following is not a primary determinant of consumption spending
Rate of return on capital
Which of the following not a determinant of Investment spending
Real income
The multiplier effect suggests that
Spending $1 increases GDP by more than $1
The multiplier effect occurs when
Spending by one person generate income for others and cause others to spend more too, increasing the impact of the initial spending on the economy
If we consider the equation PAE = A + bY the independent part of the equation that depends on income is
b