CHAP 11- all questions + study plan

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When incomes rise faster in the United States than in other countries:

U.S. net exports will fall.

If real GDP and aggregate expenditure are less than equilibrium​ expenditure, firms' inventories

decreases

The consumption function is the relationship between consumption expenditure and​ _____, other things remaining the same.

disposable income

The relationship between saving and​ _____, other things remaining the​ same, is called the saving function.

disposable income

When aggregate planned expenditure is greater than GDP, inventories will __________ and GDP and total employment will __________.

fall, increase

The multiplier is the amount by which a change in​ ______ expenditure is magnified or multiplied to determine​ ______.

​autonomous; the change in equilibrium expenditure and real GDP

Firms​ _______ production, and real GDP​ _______.

​decrease; decreases

How do​ China's exports and imports appear in the national income and product​ accounts?Exports and imports appear as items in aggregate​ _____, which is​ _____.

​expenditure; Y​ = C​ + I​ + G​ + X​ - M

Use the BEA News Release to find the growth rates of consumption​ expenditure, investment,​ exports, and government expenditures. Consumption expenditure​ _____ percent, residential fixed investment​ _____ percent and nonresidential fixed investment​ _____ percent, exports​ _____ percent, and government expenditures​ _____ percent.

increased by​ 3.3; decreased by​ 9.8; increased by​ 3.8; increased by​ 11.4; decreased by 12.6

If real GDP and aggregate expenditure are greater than equilibrium​ expenditure, firms' inventories

increases

The multiplier increases when the marginal propensity to consume

increases

An increase in __________ will cause savings to increase.

interest rates

An increase in income taxes​ _______, everything else remaining the same.

makes the multiplier smaller

An economy has a fixed price​ level, no​ imports, and no income taxes. An increase in autonomous expenditure of ​$1 trillion increases equilibrium expenditure by ​$5 trillion. Calculate the multiplier and the marginal propensity to consume.

multiplier: 5 marginal propensity: .8

How would you expect a slowdown in​ China's exports to influence real GDP and consumption​ expenditure? Exports have a​ _____ effect. A slowdown in exports slows the growth of​ _____, which slows the growth of​ _____, which slows real GDP growth.

multiplier; consumption​ expenditure; aggregate demand

Equilibrium expenditure​ _______.

occurs when all expenditure is induced expenditure

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) equals:

one.

What production activity described in this news story is not counted as part of​ GDP? The production activity described in this news story that is not counted as part of GDP is

people doing their own laundry

The aggregate expenditure model focuses on the relationship between aggregate planned expenditure and __________.

real GDP

To calculate the​ multiplier, we divide​ ______ by​ ______.

the change in equilibrium​ expenditure; the change in autonomous expenditure

The marginal propensity to import is equal to​ _______.

the change in imports divided by the change in real​ GDP, other things remaining the same

The marginal propensity to save is​ _______.

the fraction of a change in disposable income that is saved

The marginal propensity to consume is​ ______.

the fraction of a change in disposable income that is spent on consumption

The amount by which consumption spending increases when disposable income increases is called __________.

the marginal propensity to consume

When real GDP​ increases, the change in consumption expenditure equals​ _______.

the marginal propensity to consume times ×the increase in real GDP

When real GDP​ increases, the change in imports equals​ _______.

the marginal propensity to import times ×the increase in real GDP

Is it likely that all the points in the graph to the right lie on the same consumption​ function? No ​because:

the real interest​ rate, wealth, and expected future income changed

Actual investment will equal planned investment only when __________.

there is no unplanned change in inventory

Disoposable income is aggregate income minus taxes plus ​ _____.

transfer payments

If the marginal propensity to consume (MPC) is 0.9, how much additional consumption will result from an increase of $100 billion in disposable income?

$90 billion

If disposable income increases from​ $4 trillion to​ $7 trillion, saving increases from​ $1.5 trillion to​ $2 trillion, and nothing else​ changes, the marginal propensity to save is​ _____.

0.17

If equilibrium expenditure changes by​ $50 billion that results from an increase in autonomous taxes by​ $80 billion, find the autonomous tax multiplier.

0.625

If disposable income increases from​ $4 trillion to​ $7 trillion, consumption expenditure increases from​ $3.5 trillion to​ $5.5 trillion, and nothing else​ changes, the marginal propensity to consume is​ _____.

0.67

At what rates did​ China's imports grow in June and July​ 2012? In June​ 2012, China's imports grew at nothing percent and in July​ 2012, imports grew at nothing percent compared to the growth rate a year earlier.

6.3; 4.7

Possible reasons for the difference could be​ _______.

a lower return to saving

Planned saving​ + Planned consumption expenditure​ = ______.

Disposable income

​______ bring business cycle turning points.

Swings in autonomous expenditure

In an​ economy, when disposable income increases from​ $400 to​ $500, consumption expenditure increases from ​$420420 billion to ​$500500. What is the marginal propensity to​ consume, the change in​ saving, and the marginal propensity to​ save?

The marginal propensity to consume is . 80 When disposable income increases from​ $400 billion to​ $500 billion, saving increases by ​$20 billion. The marginal propensity to save is . 20

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 5. change in real GDP is 50

What influences consumption decisions and shifts the consumption​ function?

The real interest​ rate, wealth, and expected future income

The graph shows an economy that has no taxes or imports. AD0 is the aggregate demand curve when investment is​ $1.0 ​ trillion, and AD1 is the aggregate demand curve when investment is​ $1.5 trillion. What is the size of the multiplier in the short​ run?

The size of the multiplier in the short run is 4.

If the marginal propensity to save (MPS) is 0.2, how much additional consumption will result from an increase of $100 billion in disposable income?

$80 billion

What happens when there is an unplanned decrease in inventories?

Actual investment is less than planned investment.

If real GDP increases by​ $2 million and potential GDP increases by​ $3 million and the marginal propensity to import is​ 0.2, by how much do imports​ change?

Imports increase by​ $400,000

Which of the following equations is incorrect​?

MPC ​ + MPS​ = Upper DeltaΔYD

The table to the right shows the values of disposable income and consumption expenditure for each of the past four quarters. Could these levels of disposable income and consumption expenditure be on the same consumption​ function? ​___ because consumption expenditure changed by​ _____ than disposable income in​ _______ .

No​; more​; 2017 comma Upper Q 42017, Q4

The left graph shows the consumption function and the right graph shows the saving function. Suppose there is a decrease in household wealth.

The consumption function shifts from A to B and the saving function shifts from C to D.

A reason for the difference in the values between the countries may be​ ______.

U.S. consumers are more confident about the future

The marginal propensity to consume is equal to​ ______, and the marginal propensity to save is equal to​ ______.

Upper DeltaΔC divided by ÷Upper DeltaΔYD​; Upper DeltaΔS divided by ÷Upper DeltaΔYD

Fluctuations in total spending in the economy may affect:

both employment and production in the short run.

The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to​ ______.

increase real GDP by a given amount

How will the activities that Josh Maag describes change​ GDP? Why will the change be​ misleading? The activities that Josh Maag describes will ... GDP. The change will be misleading because household production will ... when people start bringing laundry to Josh.

increase; decrease

Firms​ ______ production, and real GDP​ ______.

increase; increases

Real GDP increases by more than ​$55 billion because the increase in investment​ _______.

induces an increase in consumption expenditure

Which increases in expenditure were autonomous and which were​ induced? Increases in​ ______ were autonomous and​ _____ induced.

investment, government​ expenditure, and​ exports; increase in consumption expenditure was

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.

lower higher

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.

lower; higher

At the point at which American consumers were consuming in the second and third quarters of​ 2011, saving is​ ______.

negative

If the MPC is 0.8, then a $100 million increase in government expenditures will increase equilibrium GDP by __________.

$500 million

And in an economy with no imports and no​ taxes, Multiplier​ = _______.

1/ (1-MPC)

What was the U.S. real GDP growth rate during the fourth quarter of​ 2013? The U.S. real GDP growth rate during the fourth quarter of 2013 was ... percent.

3.2

The value of the multiplier is larger when the value of the __________.

MPC is larger

An increase in household wealth will:

increase the consumption component of aggregate expenditure.

A multiplier is the amount by which a change in any component of​ _____ is magnified or multiplied to determine the change in​ _____ and​ _____ that it generates.

autonomous​ expenditure; equilibrium​ expenditure; real GDP

At what rates did​ China's exports grow in June and July​ 2012? In June​ 2012, China's exports grew at nothing percent and in July​ 2012, exports grew by nothing percent compared to the growth rate a year earlier.

11.3; 1

An economy has a fixed price​ level, no​ imports, and no income taxes. MPC is 0.8​, and real GDP is ​$100 billion. Businesses increase investment by ​$5 billion. Calculate the new level of real GDP and explain why real GDP increases by more than ​$5 billion.

125 bil

Which of these statements about autonomous expenditure is correct?

Autonomous expenditure does not depend on the level of GDP.

​______ is triggered by a decrease in autonomous expenditure and​ ______ is triggered by an increase in autonomous expenditure.

A​ recession; an expansion

When aggregate planned expenditure is lessless than real​ GDP, inventories are ​_______, so production​ ______ and inventories return to their target level as the economy moves to equilibrium expenditure.

above target​; decreases

At points above the 45 degree line in the AE model:

aggregate planned expenditure is greater than GDP.

According to this news​ clip, consumption expenditure increased as household wealth decreased. This change in consumption expenditure could be attributed to​ ______ in disposable income or​ ______ in expected future income.

an​ increase; an increase

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. For every dollar increase in​ ______ expenditure, the multiplier determines the increase in real GDP.

autonomous; autonomous

The components of aggregate expenditure that are influenced by real GDP are​ ______.

consumption expenditure and imports

Aggregate expenditure, or the total amount of spending in the economy, equals:

consumption spending plus planned investment spending plus government purchases plus net exports.

Aggregate planned expenditure is the sum of planned​ _____.

consumption​ expenditure, investment, government​ expenditure, and exports minus imports

The most important determinant of consumption is __________.

current disposable income

If an income tax is introduced in this​ economy, the multiplier​ _______.

decreases explanation: With the introduction of income tax​ payments, disposable income increases by less than the increase in real GDP and consumption expenditure increases by less than it would if taxes had not been introduced.

The multiplier increases when the marginal propensity to import​ ______ or the income tax rate​ ______.

decreases; decreases

The government expenditure multiplier equals the change in​ _____ that results from a change in government expenditure divided by the change in government expenditure.

equilibrium expenditure and real GDP

The balanced budget multiplier equals the change in equilibrium expenditure and real GDP that results from equal changes in​ _____ divided by the change in government expenditure

government expenditure and​ lump-sum taxes

The multiplier is the amount by which a change in any component of autonomous expenditure is magnified or multiplied to determine the change that it generates in equilibrium expenditure and real GDP

in question

When aggregate planned expenditures are less than the real GDP, inventories will:

rise.

What is meant by a rebound in housing and a rebound in​ stocks? A rebound in housing means ... home prices and a rebound in stocks means ... stock indices.

rising; higher

Why might a rebound in housing have a bigger effect on aggregate demand than a rebound in​ stocks? A rebound in housing might have a bigger effect on aggregate demand than a rebound in stocks because​ _____.

the​ "housing wealth​ effect" is resulting in people consuming more and saving less


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