Aggregate Expenditures

Brynn owns a pizzeria. She is deciding how many new pizza ovens to purchase. If she doesn't buy any new pizza ovens, she will earn a profit of $30. If she buys 1 pizza oven, her profit will be $40. If she buys 2 pizza ovens, her profit will be $46. If she buys 3 pizza ovens, her profit will be $49. Pizza ovens cost $100 each and the interest rate is 4%. How many pizza ovens should Brynn buy?

2

To answer the next question, use the information in the table below which illustrates the multiplier process resulting from an autonomous increase in investment by $5 The multiplier in this economy is

4

In the graph shown above, "C" is the original aggregate expenditures curve and "B" is the original equilibrium condition. Suppose government spending increases by $100. How could this be shown on the graph? (problem set 10)

A shift from "C" to "C2"

Aaron is working this summer to save money for college. Which of the following is most likely to represent Aaron's current disposable income and consumption? (problem set 3)

C

Braden decides he wants to spend $10,000 on a factory for his business. What will be the total effect on GDP?

It will increase by more than $10,000

se the following data to answer the next question.The disposable income (DI) and consumption (C) schedules are for a private, closed economy(an economy with no government and no international trade). All figures are in billions ofdollars. (practice problem)

MPC = ∆𝐶/∆𝑌 = 30/50 = 0.6 0.60

According to what we learned in class, which of the following must be true in equilibrium?

Net savings is zero

Alana's taxes increase by $100. Her MPC is .75. What is the effect on GDP?

GDP decreases by $300

The Marginal Propensity to Consume is 0.8. Government spending increases by $50. What is the effect on GDP?

GDP increases by $250

Use the following consumption schedule to answer the next question. At income level 3, the amount of consumption is represented by the line segment. practice problem)

GH

Other things being equal, a decrease in an economy's exports will

decrease domestic aggregate expenditures and the equilibrium level of GDP

se the following figures to answer the next question. Refer to the above figures with consumption schedules in figure (A) and saving schedules infigure (B), which correspond to each other across different levels of disposable income. If infigure (A), consumption increases along line A2, then in figure (B) there would be a

movement up along line B2

Use the aggregate expenditures model and the following values to answer the next question. Determine the change in the equilibrium real GDP (find ΔY) following a decrease in government spending from 400 to 300 (ΔG = -$100).

negative $400

Use the following consumption schedule to answer the next question. Disposable income equals consumption at. practice problem)

point D

The value of the multiplier is likely to fall if there is a decrease in

the marginal propensity to consume

The most basic premise of the aggregate expenditures model is that the

total output produced in the economy depends directly on the level of total spending

Use the following data to answer the next question.The disposable income (DI) and consumption (C) schedules are for a private, closed economy(an economy with no government and no international trade). All figures are in billions of dollars. (practice problem 5)

∆C = MPC ∗ ∆Y = 0.6 ∗ 50 = 30 430 + 30 = 460 $460

Assume that an increase in a household's disposable income from $40,000 to $48,000leads to an increase in consumption from $35,000 to $41,000. This means that the household's

∆C =41000 − 35000 = 6000 and ∆Y = 48000 − 40000 = 8000. As a result, MPC = 60008000 = 075 marginal propensity to consume is 0.75

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to:

∆S = 325 − 200 = 125 and ∆Y = 4500 −4000 = 500, so MPS = 125500 = 0.25. 𝑀CP = 1 − 0.25 = 0.75 0.75

Benjamin's income increases from $40,000 to $44,000. His consumption increases from $35,000 to $36,000. What is Benjamin's Marginal Propensity to Save?

.75

Jodie's autonomous consumption is $100. She currently has an income of $500 and spends a total of $200. What is Jodie's Marginal Propensity to Consume?

0.2

In Macroland autonomous consumption equals 100, the marginal propensity to consumeequals 0.75, net taxes are fixed at 40, investment is fixed at 50, government expenditures arefixed at 150, and net exports are fixed at 20. Aggregate expenditure equals

290 + 0.75Y

At full employment, aggregate expenditures are $100 billion. Currently, aggregate expenditures are $120 billion. Which of the following is true?

The current unemployment rate is below the natural rate of unemployment

If aggregate expenditure in an economy equals 2,000 + 0.8Y and full employment realGDP equals 11,000, then this economy has

a recessionary gap

Suppose that investment is increasing and that MPC is 0.75. Most of the increase in real GDP that results is due to

an increase in consumption