Econ 1040: Chapter 11 - Self-Assessment
20. Suppose that John earns a disposable annual income of $50,000 and allocates $10,000 of this for necessities. Any additional income beyond that is both spent and saved. If John's MPC is 0.8, how much will he spend on non-necessities?
$32,000 Additional income = Income - income allocated towards the necessities = 50,000 - 10,000 = 40,000 As given MPC = 0.8 = 40,000 * 0.8 the additional amount spent on non-necessities = $32,000
If the government wishes to increase GDP by $1,000 billion, and the MPC is 0.6, it should increase its spending by _______ billion.
$400
If spending increases by $100, and GDP increases by $400 as a result, what must the MPC be?
0.75
Suppose that the economy starts at PAE2. Which change would cause a move from PAE2 to PAE3?
Domestic income increases.
Suppose a housing bubble inflates house prices to new records. What will happen to overall consumption in this economy?
It will decrease.
Which of the following is a determinant of investment spending?
Taxes
An inflationary output gap exists when the current level of output is _______ full employment GDP.
above
Planned investment is the:
amount that firms budget for new capital resources and inventory accumulation.
The four components of aggregate expenditure (AE) are:
consumption, investment, government, and net exports.
In a recession, the federal government may choose to increase spending in order to:
decrease the overall price level.
If the domestic income of a nation's citizens decreases, net exports will likely:
increase.
When PAE is less than Y, inventories should:
increase.
Autonomous expenditure is spending that:
is not sensitive to the level of income in the economy.
The multiplier effect suggests that:
spending $1 increases GDP by more than $1.