macro chapter 12
At which of the market rates of interest below would Maya's Internet Services be inclined to make the investment?
at any of these interest rates listed
If actual saving exceeds planned investment, all of the following will occur except
consumers will purchase more goods than had been anticipated by businesses.
In the Keynesian model equilibrium national income
equals planned consumption, investment, government, and net export expenditures.
In this situation in which there is a decrease in autonomous expenditures, in each successive round that the multiplier is applied
expenditures decrease by a smaller amount than the previous round.
The multiplier has a larger effect on equilibrium real GDP when the price level is rising than it does when the price level remains constant.
false
The relationship between the MPC and the MPS indicates that the entire decrease in household disposable income
is distributed between consumption and saving
If real GDP falls below total planned expenditures the economy will see
production and employment increases.
Planned real investment is determined by the
rate of interest
Current disposable income held to buy consumption goods in the future is referred to as
saving.
When government spending and net exports are added into the Keynesian model
the aggregate expenditures function shifts.
For any given level of real income, the proportion of total real disposable income that is consumed is called
the average propensity to consume
The greater the value of the marginal propensity to consume
the greater the value of the multiplier
The investment function is represented as an inverse relationship between the value of planned real investment and
the rate of interest
The greater the value of the marginal propensity to save
the smaller the value of the multiplier
Any permanent decrease in autonomous real spending will cause even larger decreases in real GDP per year
true
At any point where the consumption function intersects the 45-degree reference line, C = Y.
true
Because of the multiplier effect, a relatively small change in planned investment can trigger a much larger change in equilibrium real GDP per year.
true
Equilibrium has to occur at the intersection of the planned saving and planned investment schedules.
true
In the United States, resourse-using federal government expenditures account for almost 20 percent of real GDP.
true
The difference between real exports and real imports is called real net exports.
true
When including consumption, investment, government expenditures, and net exports, the equilibrium level of real GDP is found at the intersection of the C + I + G + X curve and the 45-degree reference line.
true
Suppose that the economy of the United States has an investment schedule that is reflected in the graph shown. a. If the current rate of interest is 6% the economy will have planned real investment this year totaling
$2.0 trillion
If the MPC = 0.8, a permanent increase in planned real investment of $40 billion will increase real GDP by a total of
$200 billion
When disposable income is equal to $200 billion total planned expenditures equal
$330 billion
What is the current equilibrium real GDP in the economy for a level of exports X0?
$4 trillion
According to the graphs, the equilibrium level of real GDP is $8,0008,000. (Hint: the values on the graph are in thousands of dollars) In this economy, the numerical value of the multiplier is 44. Had there not been any investment, this economy's equilibrium real GDP would be $2,0002,000. The multiplier effect from the inclusion of investment is $6,0006,000. If autonomous investment declines from $1,500 to $1,000, the equilibrium real GDP changes to $6,0006,000
.
The economy's marginal propensity to save is
0.30
The avergage propensity to consume when the disposable income is $550 billion is equal to
0.88
If the MPC = 0.9, the multiplier equals
10
Therefore, in this model when investment, government spending and net exports are included, and the disposable income is $200 billion, unplanned inventory is valued at
$-100 billion
Therefore, in this model when investment is included, when the disposable income is $200 billion, saving must be equal to
$-60 Billion
At an initial point on the aggregate demand curve, the price level is 125, and real GDP is $10 trillion. When the price level falls to a value of 120, total autonomous expenditures increase by $250 billion. The marginal propensity to consume is 0.75. The level of real GDP at the new point on the aggregate demand curve is
$11 trillion
What is the current equilibrium real GDP in the economy for a level of investment I0?
$12 trillion
When disposable income is equal to $200 billion total expenditures (including investment) equal
$280 billion
The multiplier in a country is equal to 4, and households pay no taxes. At the current equilibrium real GDP of $16 trillion, total real consumption spending by households is $14 trillion. Real autonomous consumption in this country is $2 trillion.
.
A consumption function is given by the following relationship: C = 100 + 0.70(Yd). What is the multiplier in this model?
3.33
Now suppose the consumption function changes to: C = 100 + 0.75(Yd). What is the multiplier in this model?
4
Which of the following statements is true of the multiplier in the Keynesian model when there is a(n) decrease in autonomous expenditures?
Expenditures decrease by the same proportion during each round of spending.
If the MPC equals 0.8, an additional $500 in disposable income will result in an additional $400 saved.
False
Keynes argued that real consumption and saving decisions depend primarily on a household's expected future income.
False
Which of the following statements best reflects the relationship between saving and savings?
Saving is a flow variable; savings is a stock variable
All of the following can cause the investment function to shift except
a change in the rate of interest.
With respect to real GDP, planned investment is autonomous and is therefore represented graphically as
a horizontal line
and a decrease in the interest rate causes
an increase in the amount of real planned investment.
Use the identity: Yd = C + S as a basis to answer the following questions. In the Keynesian model, if disposable income were to decrease households would
decrease both their consumption and saving
Saving is the portion of
disposable income that is not consumed.
The larger the MPS, the larger the multiplier
false
All of the following are flow concepts except
savings
The AD curve is drawn with the price level ________, and the C + I + G + X curve is drawn with the price level ________.
changing; held constant
Maya's internet services is contemplating an investment of $2,000,000 in new computer servers and related hardware. Management of this company predict a 6.9 percent annual return on this investment. The current market rate of interest is 9.8 percent. Maya's internet services will
not make the investment since the cost is greater than the expected return.
Which of the following statements is true concerning the foreign sector in the simple Keynesian model?
Net exports are autonomous.
Any change in autonomous spending shifts the expenditure curve and causes a multiplier effect on equilibrium real GDP per year. The multiplier is equal to 1 divided by the marginal propensity to save. The smaller the marginal propensity to save, the larger the multiplier. Otherwise stated, the larger the marginal propensity to consume, the larger the multiplier. The C + I + G + X curve, is drawn with the price level held constant, whereas the AD curve allows the price level to change. Each different price level generates a new C + I + G + X curve
.
Any change in the non-interest-rate determinants of planned investment will cause a shift in the planned investment function so that at each and every rate of interest a different amount of planned investment will be made.
.
Assume that the MPS in an economy is equal to 0.33. The multiplier must be equal to 3.03. You have established that the multiplier is 3.03. Now assume that autonomous real consumption is $5 trillion. There is no other autonomous spending presently taking place in the economy. At what level is consumption equal to realGDP? $15.15 trillion
.
Assume that the multiplier in a country is equal to 5 and that autonomous real consumptionLOADING... spending is $2 trillion. If current real GDP is $15 trillion, the current value of real consumption spending is $1414 trillion.
.
Given that the MPS in an economy is equal to 0.40, the multiplier is equal to 2.50 (Round your answer to two decimal places) Now assume that autonomous real consumption spending is $1 trillion. There is no other autonomous spending presently taking place in the economy. The current real GDP is $20 trillion. What is the current amount of real consumption in the economy? $13.00 trillion
.
Saving is a flow, something that occurs over time. It equals disposable income minus consumption. Incontrast, savings are a stock. They are the accumulation resulting from saving. Investment is also a flow. It includes expenditure on new machines, buildings, and equipment and in business inventories. The consumption function shows the relationship between planned rates of real consumption and real disposable income per year. The saving function is the complement of the consumption function because real saving plus real consumption must equal real disposable income. The average propensity to consume is equal to real consumption divided by real disposable income. The average propensity to save is equal to real saving divided by real disposable income. The marginal propensity to consume is equal to the change in planned real consumption divided by the change in real disposable income. The marginal propensity to save is equal to the change in planned real saving divided by the change in real disposable income. Any change in real disposable income will cause the planned rate of consumption to change. This is represented by a movement along the consumption function. Any change in a nonincome determinant of consumption will cause a shift in the consumption function.
.
Suppose an economy is depicted by the expenditure function provided below: C + G + I + X = $300 + 0.80×Y + $550 + $200 + $125 All figures are in billions of dollars. Assume there are no taxes in this nation so disposable income Yd = Y. The economy reaches an equilibrium at $5,8755 billion.
.
The marginal propensity to consume is 0.60. At the market interest rate of 10 percent, planned investment spending is $100 billion. The slope of the C + I function is identical to the slope of the consumption function because investment in this model is autonomous. So as the amount of planned investment increases, the slope of the C + I function remains constant.
.
The marginal propensity to consume is equal to 0.50. An increase in household wealth causes autonomous consumption to rise by $20 billion. Calculate by how much equilibrium real GDP will increase at the current price level, other things being equal. Equilibrium real GDP will increase by $40 billion
.
The planned investment schedule shows the relationship between real investment and the interest rate ; it slopes downward
.
The value for the multiplier is given to be 2. Calculate both the MPS and the MPC. The value of the MPS is 0.5 (Enter your response rounded to two decimal places.) The value of the MPC is 0.5 (Enter your response rounded to two decimal places.)
.
The non-interest-rate determinants of planned investment are expectations , innovation and technological changes, and business taxes .
.
We assume that the consumption function has an autonomous part that is independent of the level of real GDP per year. It is labeled "autonomous consumption." For simplicity, we assume that real investment is autonomous with respect to real GDP and therefore unaffected by the level of real GDP per year. The equilibrium level of real GDP can be found where planned savings equals planned investment. Whenever planned saving exceeds planned investment, there will be unplanned inventory increases, and real GDP will fall as producers cut production of goods and services. Whenever planned saving is less than plannedinvestment, there will be unplanned inventory decreases, and real GDP will rise as producers increase production of goods and services.
.
When we add autonomous investment, I, and autonomous government spending, G, to the consumption function, we obtain the C + I + G curve, which represents total planned expenditures for a closed economy. In an openeconomy, we add the foreign sector, which consists of exports minus imports, or net exports, X. Total planned expenditures are thus represented by the C + I + G + X curve. Equilibrium real GDP can be found by locating the intersection of the total planned real expenditures curve with the 45-degree reference line. At that level of real GDP per year, planned real consumption plus planned real investment plus real government expenditure plus real net exports will equal real GDP. Whenever total planned real expenditures exceed real GDP, there will be unplanned decreases in inventories. Production of goods and services will increase, and a higher level of equilibrium real GDP will prevail. Whenever total planned real expenditures are less than real GDP, there will be unplanned increases in inventories. Production of goods and services will decrease, and equilibrium real GDP will decrease.
.
You have established that the multiplier is 3.03 and that autonomous real consumption is $5 trillion. There is autonomous investment of $6 trillion and autonomous net exports of $5 trillion. At what level are expenditures equal to realGDP? $48.48 trillion.
.
Since late 2016 the U.S. planned investment function has shifted upward considerably. Which of the following most likely explains this upward shift? A. A reduction in federal business tax rates B. Improved business expectations of future profits C. A lower real interest rate D. Only A and B are correct. E. All of the above are correct
D
All of the following will cause the planned investment function to shift leftward except
an increase in the interest rate
The amount of planned real investment in the economy has relationship with the rate of interest.
an inverse
