Chapter 11
The slope of the consumption function
equals the mpc
If the marginal propensity to consume equals 0.75, then a $100 increase in after-tax disposable income leads to a _____ increase in consumption
$75
Upon examining data on after-tax income and consumption spending for the Adam Smith family, you find that when the family's after-tax income is $9,000 their consumption spending is $18,100 and when the family's after tax income is $14,000 their consumption is $22,600. Based on these data the Adam Smith family has a marginal propensity to consume of
.9
In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals .75, tax receipts are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals
1,160
If planned aggregate expenditure in an economy can be written as PAE = 1,000 + .9 Y, what is the short-run equilibrium level of output in this economy?
10,000
In the fixed price model, a credit crunch will cause the equilibrium output to
Decrease
In the fixed price model, a decrease in consumer confidence will cause the equilibrium output to
Decrease
In the fixed price model, an increase in the exchange rate (in the form of foreign currency per units of home currency) will cause the equilibrium output to
Decrease
In the fixed price model, a decrease in the price of capital will cause the equilibrium output to
Increase
In the fixed price model, a tax cut will cause the equilibrium output to
Increase
Planned aggregate expenditure is total
planned spending on final goods and services.
If inventories decline by more than analysts predict they will decline, this implies that
actual investment spending was less than planned investment spending
An unplanned increase in inventories results from
actual investment that is greater than planned investment
Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred?
There was an unplanned increase in inventories equal to $2 million
Which of the following will decrease aggregate expenditure in the United States?
a decrease in government purchases
If planned aggregate expenditure (PAE) in an economy equals 2,000 + .8Y and potential output (Y*) equals 11,000, then this economy has
a recessionary gap
If the economy is currently in equilibrium at a level of GDP that is below potential GDP, which of the following would move the economy back to potential GDP?
an increase in wealth
If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a/an __________ gap that can be closed by _________.
expansionary; decreasing government purchases
A fiscal policy action to close an expansionary gap is to
increase taxes
In the basic Keynesian model an increase in government purchases
increases short-run equilibrium output
Automatic stabilizers are provisions in the law that imply automatic ______ in government spending or _______ in taxes when real output declines.
increases; decreases
An increase in the real interest rate will
most likely lower consumers' purchases of durable goods.
In the short run with predetermined prices, when output is less than planned aggregate expenditure
planned investment is greater than actual investment
In the short run with predetermined prices, when output is greater than planned aggregate expenditure, firms will
reduce production
Planned investment may differ from actual investment because of
unplanned changes in inventories