Macro Graded Assignment #7
The table gives you information about the economy of Bluejay Island. Disposable income 0 100 200 300 Consumption expenditure 25 100 175 250 What is the marginal propensity to save? The marginal propensity to save is _____.
0.25
The figure illustrates the components of aggregate planned expenditure on Turtle Island. Turtle Island has no imports or exports, no income taxes, and the price level is fixed. Calculate autonomous expenditure and the marginal propensity to consume in Turtle Island. Autonomous expenditure is $ _____ billion. The marginal propensity to consume is _____.
2 billion 0.6
In an economy without taxes and imports, an increase in investment of $50 billion increases equilibrium expenditure by $125 billion. What are the values of the multiplier and the slope of the AE curve? The multiplier is _____ and the slope of the AE curve is _____.
2.5 (125/50) 0.6 The multiplier = 1/(1-Slope of AE curve)
If real GDP and aggregate expenditure are less than equilibrium expenditure, what happens to firms? inventories? How do firms change their production? And what happens to real GDP? Firms' inventories _____. ... so they ______ production, and real GDP ______. A. increase; decreases B. decrease; decreases C. increase; increases D. decrease; increases
decrease C. increase; increases
The table gives the elements of planned expenditure. Real GDP 0 1 Consumption expenditure 0.4 2.1 Investment 0.5 0.5 Government expenditure 0.5 0.5 Exports 0.9 0.9 Imports 0 0.5 When real GDP is $1 trillion, what are aggregate planned expenditure, autonomous expenditure, and induced expenditure? When real GDP is $1 trillion, aggregate planned expenditure is $ _____ trillion. Autonomous expenditure is $ _____ trillion. Induced expenditure is $ _____ trillion.
3.5 2.3 1.2
Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by $200 billion. What is the change in equilibrium expenditure if the price level remains at 100? The change in equilibrium expenditure is $ _____ billion.
400 billion
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.8, and real GDP is $300 billion. Businesses increase investment by $2 billion. Calculate the multiplier and the change in real GDP. The multiplier is _____. The increase in real GDP is $_____ billion.
5 The multiplier equals 1/(1-Slope of AE curve). 10 billion
The figure illustrates the components of aggregate planned expenditure on Turtle Island. Turtle Island has no imports or exports, no income taxes, and the price level is fixed. What is aggregate planned expenditure when real GDP is $6 billion? What is happening to inventories when real GDP is $6 billion? Inventories are _____. What is happening to inventories when real GDP is $4 billion? Inventories are _____.
5.6 billion increasing decreasing
In an economy with a fixed price level, autonomous spending is $20 trillion and the slope of the AE curve is 0.75. What is the equation of the AE curve? The equation is _______. A. AE = 20 + 0.25Y B. AE = 20 + 0.75Y C. AE = 0.75Y - 20 D. AE = 0.25Y - 20 Calculate equilibrium expenditure. Equilibrium expenditure is $ _____ trillion. Calculate the multiplier. The multiplier is _____. Calculate the shift of the aggregate demand curve if investment increases by $1 billion The aggregate demand curve shifts rightward by $ _____ billion.
B. AE = 20 + 0.75Y 80 trillion (Equilibrium expenditure occurs when aggregate planned expenditure equals real GDP. Using the formula AE = 20 + 0.75Y , set aggregate planned expenditure equal to Y, and solve for Y.) 4 4 billion (When investment increases, the aggregate demand curve shifts rightward by an amount equal to the change in investment times the multiplier.)
Which components of aggregate expenditure are influenced by real GDP? A. Consumption expenditure, government expenditure, investment, and imports B. Consumption expenditure and imports C. Consumption expenditure, investment, and imports D. Investment, exports, and imports
B. Consumption expenditure and imports Consumption expenditure and imports are influenced by real GDP. When real GDP increases, consumption expenditure and imports increase.
The components of aggregate expenditure include I. imports. II. consumption. III. government transfer payments. A. II and III B. I and II C. II only D. I, II and III
B. I and II
Which of the following equations is incorrect? A. (DeltaYD*MPS) + (DeltaYD*MPC) = DeltaYD B. MPC + MPS =DeltaYD C. DeltaYD*MPS = DeltaS D. DeltaC + DeltaS = DeltaYD
B. MPC + MPS =DeltaYD
The multiplier is the amount by which a change in ______ expenditure is magnified or multiplied to determine ______. A. autonomous; the change in investment B. autonomous; the change in equilibrium expenditure and real GDP C. consumption; the change in equilibrium expenditure and real GDP D. consumption; the change in investment To calculate the multiplier, we divide ______ by ______. A. the change in equilibrium expenditure; autonomous expenditure B. the change in equilibrium expenditure; the change in autonomous expenditure C. equilibrium expenditure; autonomous expenditure D. equilibrium expenditure; the change in autonomous expenditure
B. autonomous; the change in equilibrium expenditure and real GDP B. the change in equilibrium expenditure; the change in autonomous expenditure
If autonomous expenditure decreases with no change in the price level, what happens to the AE curve and the AD curve? Which curve shifts by an amount that is determined by the multiplier and why? The ______ curve shifts downward by an amount equal to the decreases in autonomous expenditure. The ______ curve shifts leftward by an amount equal to the decreases in autonomous expenditure times the multiplier because the ______ at each price level. A. AD; AE; AE curve plots equilibrium expenditure B. AE; AD; AD curve plots aggregate planned expenditure C. AE; AD; AD curve plots equilibrium expenditure D. AD; AE; AE curve plots aggregate planned expenditure Illustrate the effect of a change in autonomous expenditure. Investment decreases by $0.5 trillion, and the multiplier is 4. Draw a new aggregate demand curve that shows the effect of the decrease in investment. Label it AD1. Draw a point to indicate the quantity of real GDP demanded following the decrease in investment when the price level is 115. Label it B.
C. AE; AD; AD curve plots equilibrium expenditure Shift AD Line 2 trillion (0.5*4) to the left. Point B is at (12, 115)
Planned saving + Planned consumption expenditure = ______. A. Aggregate income B. Expected future income minus Disposable income C. Disposable income D. Wealth
C. Disposable income
The U.S. and China's Savings Problems Last year China saved about half of its gross domestic product while the United States saved only 13 percent of its national income. The contrast is even starker at the household levellong dasha personal saving rate in China of about 30 percent of household income, compared with a U.S. rate that dipped into negative territory last year (minus0.4% of after-tax household income). Similar extremes show up in the consumption shares of the two economies. Read the news clip, then answer the following questions. The MPS in the United States is lower than the MPS in China, and the MPC in the United States is higher than the MPC in China. A reason for the difference in the values between the countries may be ______. A. incomes are higher in the United States B. the trade imbalance between China and the United States C. U.S. consumers are more confident about the future D. the larger size of China's population
C. U.S. consumers are more confident about the future
You observe that unplanned inventories are increasing. You predict that there will be _______. A. an expansion B. a business cycle C. a recession D. a peak
C. a recession
How do the marginal propensity to consume, the marginal propensity to import, and the income tax rate influence the multiplier? The multiplier increases when the marginal propensity to consume _____. . The multiplier increases when the marginal propensity to import ______ or the income tax rate ______. A. decreases; increases B. increases; increases C. decreases; decreases D. increases; decreases
C. decreases; decreases
According to the Keynesian theory, the typical firm A. changes its prices frequently in response to fluctuations in aggregate demand. B. lowers its prices if sales exceed production. C. does not change its prices immediately when aggregate demand fluctuates. D. lowers its prices when inventories are decreasing.
C. does not change its prices immediately when aggregate demand fluctuates.
Equilibrium expenditure is the level of aggregate expenditure that occurs when ______. A. real GDP is maximized B. inventory holdings are minimized C. aggregate planned expenditure is maximized D. aggregate planned expenditure equals real GDP Choose the correct statement. A. Equilibrium expenditure occurs at all points along the AE curve. B. Equilibrium expenditure occurs at the point at which the AE curve intersects the x-axis. C. The level of aggregate expenditure that occurs where the AE curve intersects the 45 degrees line is equilibrium expenditure. D. Equilibrium expenditure occurs at all points along the 45 degrees line.
D. aggregate planned expenditure equals real GDP C. The level of aggregate expenditure that occurs where the AE curve intersects the 45 degrees line is equilibrium expenditure.
What is the multiplier? The multiplier is the amount by which the change in ______ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP. What does it determine? For every dollar increase in ______ expenditure, the multiplier determines the increase in real GDP. A. autonomous; induced B. induced; autonomous C. induced; induced D. autonomous; autonomous Why does it matter? The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to ______. A. make inventories equal to their target levels B. increase real GDP by a given amount C. minimize taxes and maximize transfer payments D. maximize real GDP
D. autonomous; autonomous B. increase real GDP by a given amount
How does a change in the price level influence the AE curve and the AD curve? Use the graphs to answer this question. The left graph shows an economy's aggregate planned expenditure curve. The right graph shows its aggregate demand curve. Equilibrium expenditure is $12 trillion and the price level is 110. Suppose the price level falls to 90 and the new equilibrium expenditure is $13 trillion. In the left graph, draw the AE curve that shows the effect of this event. Label it. Draw a point to show the new equilibrium expenditure. In the right graph, draw a point on the AD curve at the new equilibrium real GDP and price level. Draw an arrow on the curve that shows the effect of the fall in price level.
Left graph: AE1 is shifted upwards so there is an intersection at (13, 13) Right Graph: AD does not move, point at (13, 90) arrow goes from first point to the second, on AD
In an economy, when disposable income increases from $400 to $500, consumption expenditure increases from $450 billion to $525. Calculate the marginal propensity to consume, the change in saving, and the marginal propensity to save. The marginal propensity to consume is _____. When disposable income increases from $400 billion to $500 billion, saving increases by $_____ billion. The marginal propensity to save is _____.
0.75 25 billion 0.25
The spreadsheet lists the components of aggregate planned expenditure at different levels of real GDP in billions of dollars. A. B. C. D. E. F. G. 1. Y. C. I. G. X. M. 2 A. 100. 110. 50. 60. 60. 15. 3 B. 200. 170. 50. 60. 60. 30. 4 C 300. 230. 50. 60. 60. 45. 5 D 400. 290. 50. 60. 60. 60. 6 E 500. 350. 50. 60. 60. 75. 7 F 600. 410. 50. 60. 60. 90. Calculate autonomous expenditure. Autonomous expenditure is $_____ billion. Calculate the marginal propensity to consume. The marginal propensity to consume is _____.
220 billion 0.6
The spreadsheet lists the components of aggregate planned expenditure at different levels of real GDP in billions of dollars. What is aggregate planned expenditure when real GDP is $200 billion? If real GDP is $200 billion, explain the process that moves the economy toward equilibrium expenditure. Production ______ in response to ______ . A. increases; an unplanned decrease in inventories B. decreases; a planned decrease in inventories C. increases; an increase in consumption expenditure D. decreases; real GDP being less than aggregate planned expenditure If real GDP is $500 billion, explain the process that moves the economy toward equilibrium expenditure. When real GDP is $500 billion, aggregate planned expenditure is $ 445 billion. Production ______ in response to ______ . A. increases; a planned increase in inventories B. decreases; an unplanned increase in inventories C. increases; real GDP exceeding aggregate planned expenditure D. decreases; a decrease in consumption expenditure
310 billion A. increases; an unplanned decrease in inventories B. decreases; an unplanned increase in inventories
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.5, and real GDP is $300 billion. Businesses increase investment by $10 billion. Calculate the new level of real GDP and explain why real GDP increases by more than $10 billion. The new level of real GDP is $ _____ billion. Real GDP increases by more than $10 billion because the increase in investment _______. A. increases the marginal propensity to consume B. enables firms to produce more output C. increases exports D. induces an increase in consumption expenditure
320 billion D. induces an increase in consumption expenditure
An economy has no imports and no taxes. The marginal propensity to save is 0.8. A ______ increase in autonomous expenditure increases equilibrium expenditure by $60 billion. The multiplier is ______. A. $48 billion; 1.25 B. $19 billion; 48 C. $192 billion; 0.31 D. $75 billion; 1.25
A. $48 billion; 1.25
An economy with no income taxes or imports has a marginal propensity to consume of 0.75. The multiplier in the long run is _______. A. 0 B. 1.33 C. greater than 1.33 & less than 4 D. 4
A. 0 In the long run, the economy is at a full-employment equilibrium. When investment increases, the economy moves to an above full-employment equilibrium. The money wage rate rises and short-run aggregate supply decreases until the economy returns to a full-employment equilibrium.
How does equilibrium expenditure come about? What adjusts to achieve equilibrium? Equilibrium expenditure comes about because firms change their ______ in response to unplanned changes in ______. A. production; inventories B. prices; production C. inventories; production D. prices; inventories Draw a point on the AE curve at which planned expenditure exceeds real GDP. Label it 1. Draw a point on the AE curve at which real GDP exceeds planned expenditure. Label it 2. When aggregate planned expenditure is less than real GDP, inventories are _______, so production ______ and inventories return to their target level as the economy moves to equilibrium expenditure. A. above target; decreases B. below target; increases C. below target; decreases D. above target; increases
A. production; inventories Point 1 - (11, 12) Point 2 - (15, 14) A. above target; decreases
Suppose that the economy is at full employment, the price level is 100, and the multiplier is 3. Investment increases by $100 billion. What is the immediate change in the quantity of real GDP demanded? Use the graph to answer this question. Draw the new AD curve. Label it. Draw a point to show the immediate change in the quantity of real GDP demanded. Label it 1. In the short run, does real GDP increase by more than, less than, or the same amount as the immediate change in the quantity of real GDP demanded? Answer by drawing a point at the new short-run macroeconomic equilibrium. Label it 2.
AD1 Shifts to the right 1 is at (1300, 100) 2 is at (1150, 130)
The table gives the aggregate expenditure schedule. Equilibrium expenditure is equal to _______. A. $ 6 trillion B. $3 trillion C. $5 trillion D. $4 trillion
B. $3 trillion
For a given increase in aggregate demand, the steeper the slope of the short-run aggregate supply curve, the ______ is the increase in the price level and the ______ is the multiplier effect on real GDP in the short run. A. smaller; larger B. larger; smaller C. smaller; smaller D. larger; larger
B. larger; smaller
A fall in the price level _______. A. shifts the AD curve rightward and brings a movement up along the AE curve B. shifts the AE curve upward and brings a movement down along the AD curve C. shifts the AE curve downward and brings a movement up along the AD curve D. shifts the AD curve leftward and brings a movement down along the AE curve
B. shifts the AE curve upward and brings a movement down along the AD curve
The marginal propensity to import is equal to _______. A. disposable income minus consumption expenditure minus saving divided by real GDP B. the change in imports divided by the change in real GDP, other things remaining the same C. imports minus exports D. the change in net imports divided by the change in disposable income, other things remaining the same
B. the change in imports divided by the change in real GDP, other things remaining the same
How do we calculate the effects of real GDP on consumption expenditure and imports by using the marginal propensity to consume and the marginal propensity to import? To calculate the effect of real GDP on consumption expenditure, we need to know ______ . A. both the marginal propensity to consume and the marginal propensity to import B. only the effect of real GDP on disposable income C. both the marginal propensity to consume and the effect of real GDP on disposable income D. only the marginal propensity to consume To calculate the effect of real GDP on imports, we need to know ______ . A. both the marginal propensity to import and the marginal propensity to consume B. both the marginal propensity to import and the effect of real GDP on disposable income C. only the marginal propensity to import D. only the effect of real GDP on disposable income
C. both the marginal propensity to consume and the effect of real GDP on disposable income C. only the marginal propensity to import
Explain the difference between induced consumption expenditure and autonomous consumption expenditure. Induced expenditure is ______. Autonomous expenditure is ______. A. the expenditure on goods and services even when real GDP is zero; any expenditure that increases as real GDP increases B. the sum of investment, government expenditure, and exports, which does not vary with real GDP; consumption expenditure minus imports, which varies with real GDP C. consumption expenditure minus imports, which varies with real GDP; the sum of investment, government expenditure, and exports, which does not vary with real GDP D. expenditure that decreases as real GDP increases; expenditure that increases as real GDP increases Why isn't all consumption expenditure induced expenditure? All consumption is not induced expenditure because ______. A. some purchases are made using credit cards B. even with no income a person enjoys some luxuries C. even a person with no income must buy life's necessities D. consumers save
C. consumption expenditure minus imports, which varies with real GDP; the sum of investment, government expenditure, and exports, which does not vary with real GDP C. even a person with no income must buy life's necessities
What is the relationship between aggregate planned expenditure and real GDP at equilibrium expenditure? At equilibrium expenditure, aggregate planned expenditure ______ real GDP. A. might exceed or be less than but is moving toward B. exceeds but is moving toward C. equals D. is less than but is moving toward The table is an economy's aggregate expenditure schedule. Real GDP 0 3 6 Aggregate planned expenditure 1.0 2.5 4.0 Draw the AE curve and label it. Draw a point at equilibrium expenditure.
C. equals Line endpoints: (0, 1) and (6, 4) (2, 2)
In the Keynesian model of aggregate expenditure, real GDP is determined by the A. level of taxes. B. price level. C. level of aggregate demand. D. level of aggregate supply.
C. level of aggregate demand.
Collapsing Savings Rate Before 1984, the U.S. savings rate held steady for decades, though it dipped during the Great Depression and rose sharply during WWII, when there was little to buy besides war bonds. The rate dipped briefly again after WWII, and then rose steadily until 1984, when saving was 10.2 percent of income. Since 1984, saving has fallen to between 2 percent and 3 percent of income. Read the news clip, then answer the following questions. The MPS in the United States is ______ today than it was before 1984, and the MPC in the United States is ______ today than it was before 1984. A. higher; higher B. lower; lower C. lower; higher D. higher; lower Possible reasons for the difference could be _______. A. lower expected future income B. a decrease in expected future wealth C. a lower return to saving D. a higher return to saving
C. lower; higher C. a lower return to saving
The table gives information about a consumption function. Disposable income 0 100 200 300 Consumption expenditure 50 125 200 275 Draw the consumption function and label it CF. The level of disposable income at which all disposable income is consumed is $ _____ million.
Literally just plot the points. 200 million
