introduction macroeconomics: ch 12 homework

four important variables of investment are

1) expectations of future profitability 2) interest rate 3) taxes 4) cash flow

three important variables of net exports are

1) the U.S. price level 2) the growth rate of U.S. GDP 3) the exchange rate

Find equilibrium GDP using the following macroeconomic model ​(the numbers, with the exception of the​ MPC, represent billions of dollars​) Consumption function C​ = 1,250 ​+ 0.50Y Planned investment function I​ = 1,000 Government spending function G​ = 1,250 Net export function NX​ = 100 Equilibrium condition Y​ = C​ + I​ + G​ + NX

17000 1, 250 + 0.75Y + 1, 500 + 1, 000 + 500 = 4250 + 0.75Y Y = 4250 + 0.75Y Y - 0.75Y = 4250 Y ( 1 - 0.75) = 4250 Y = 4250 / 0.25 Y= 17000

What is the effect on real GDP of a ​$100 billion change in planned investment if the MPC is 0.75​? _____ billion

400 Total change in real GDP​ = Change in planned investment * (1/(1−MPC))

Suppose that autonomous consumption is 500​, government purchases are 1,250​, planned investment spending is 1,000​, net exports are 0​, and the MPC is 0.5. equilibrium GDP is equal to ​$ _____

5500 500+1250+1000+0=2750 (1/1-0.5)=2 2*2750=5500

the aggregate expenditure model can be written in terms of four spending categories. Which equation shows the relationship between aggregate expenditure and the four spending​ categories?

AE = C + I + G + NX consumption (C) planned investment (I) government purchases (G) net exports (NX)

Planned Aggregate Expenditure​ = Consumption​ + Planned Investment​ + Government​ Purchases+ Net exports

AE​ = C​ + I​ + G​ + NX

Unplanned Changes in Inventories​ = Real GDP (Y) − Planned Aggregate Expenditure​ (AE)

Unplanned Change in Inventories​ = Y​ - AE

which of the following will increase planned investment spending on the part of​ firms?

a and b only a) increased optimism about future demand for its product b) a lower real interest rate

aggregate expenditure model

a macroeconomic model that focuses on the relationship between total spending and real​ GDP, assuming that the price level is constant

consider the figure. This economy is in macroeconomic equilibrium at what level of real​ GDP? _____ billion what is the level of planned investment? _____ billion

a) 80 b) 10

The general algebraic version of the aggregate expenditure model can be written as​ follows, where letters with​ "bars" represent fixed or autonomous values. C = C + MPC (Y) I = I G = G NX = NX if you think of the aggregate expenditure function as a line on the​ 45°-line diagram, the intercept would be? if you think of the aggregate expenditure function as a line on the​ 45°-line diagram, the slope would be?

a) C + I + G + NX b) MPC

a increase in.. --> will (increase/decrease) --> net exports a) the U.S. price level relative to other​ countries' price levels --> _____ --> net exports b) the growth rate of U.S. GDP relative to other​ countries' --> _____ --> net exports c) the exchange rate between the dollar and other currencies --> _____ --> net exports

a) decrease b) decrease c) decrease

Complete the following table to indicate what effect a decrease in each of the consumption components will have on consumption TABLE a decrease in.. --> will (increase/decrease) --> consumption a) the price level --> _____ --> consumption b) household wealth --> _____ --> consumption c) expected future income --> _____ --> consumption d) current disposable income --> _____ --> consumption e) the interest rate --> _____ --> consumption

a) increase b) decrease c) decrease d) decrease e) increase

when potential real GDP is equal to​ 70, this economy is in _____ the amount of the shortfall in planned aggregate expenditure is equal to

a) recession b) the vertical distance between AE and the 45° line at the level of potential real GDP

consider the macroeconomic model shown​ below Consumption function C​ = 1000 ​+ 0.80Y Planned investment function I​ = 1250 Government spending function G​ = 1500 Net export function NX​ = 200 Equilibrium condition Y​ = C​ + I​ + G​ + NX fill in the following TABLE a) $15800 (GDP) b) $23700 100(GDP)

aggregate expenditures (AE) a) 16590 b) 22910 unplanned change in inventories a) -790 b) 790

the relationship between the marginal propensity to consume​ (MPC) and the marginal propensity to save​ (MPS) can best be described as

all of the above a) MPS​ = 1−MPC b) MPC​ = 1−MPS c) MPC​ + MPS​ = 1

indicate which of the following is correct about the multiplier effect.

all of the above a) the larger the​ MPC, the more additional consumption that occurs b) the multiplier ignores the effect on real GDP of​ imports, inflation, and interest rates c) a decrease in autonomous spending decreases real GDP by a multiple of the change

we say that the economy as a whole is in macroeconomic equilibrium if

all of the above a) total spending equals total production b) aggregate expenditure equals total production c) aggregate expenditure equals GDP d) total spending equals GDP.

Which of the following is NOT a reason why the aggregate expenditures fall when the price level increases

consumers substitute from higher - priced goods to lower - priced goods

we can use the diagram to compare movements in real consumption between 1979 and 2019. which of the following statements is​ true?

consumption follows a smooth, upward trend, interrupted only infrequently by brief recessions

net exports (NX)

equals exports minus imports

when planned aggregate expenditure is less than real​ GDP, as in the diagram to the​ right, what happens to​ firms' inventories?

inventories accumulate if production is not scaled back

what is the effect on​ inventories, GDP, and employment when aggregate expenditure​ (total spending) exceeds​ GDP?

inventories decreases, GDP increases, and employment increases

in the​ figure, a​ $20 trillion increase in planned investment increased the AE line from AE1 to AE2. ​However, real GDP increased by​ $40 trillion.​ Why?

multiplier effect

the growth in U.S. real government purchases

tends to be​ positive, but has fallen in recessions and in response to concerns about the size of budget deficits

marginal propensity to save​ (MPS)

the change in saving divided by the change in disposable income MPs = ΔS/ΔY

multiplier effect

the process by which an increase in autonomous expenditure leads to a larger increase in real GDP

marginal propensity to consume​ (MPC)

the slope of the consumption​ function: The amount by which consumption spending changes when disposable income changes MPC = ΔC/ΔY

government purchases

total government purchases include spending on goods and services by all​ federal, state, and local governments. do not include transfer payments, such as Social Security payments to qualified individuals

which of the following is NOT included in the calculation of total government​ purchases?

unemployment insurance benefits paid for by the federal government

in the aggregate expenditure​ model, when is planned investment greater than actual​ investment?

when there is an unplanned decrease in inventories

(IF) aggregate expenditure is equal to GDP (THEN) inventories are unchanged (AND) the economy is in macroeconomic equilibrium (IF) aggregate expenditure is less than GDP (THEN) inventories rise (AND) GDP and employment decrease (IF) aggregate expenditure is greater than GDP (THEN) inventories fall (AND) GDP and employment increase

when total spending equals total​ production, firms sell what they expected to​ sell; inventories do not change and the economy is said to be in macroeconomic equilibrium when spending is less than total​ production, inventories rise. In order to slow​ production, firms hire fewer workers. GDP and employment decrease when spending exceeds total​ production, inventories fall. In order to increase​ inventories, firms hire more workers. GDP and employment increase

U.S. real net exports are typically

​negative, and usually rise in recessions and fall in expansions