CHAP 11- all questions + study plan
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
