EC 202 Ch. 11

Suppose the marginal propensity to consume for the United States is 0.7. If policy makers wish to increase GDP by $50 billion, how much does government spending have to increase to meet this target?

$15 billion

The following questions are based upon the Keynesian model below. C = 50 + 0.8(y - T) I = 200 G = 150 T = 100 If taxes decrease by 50, then the change in output is:

-200

The following questions refer to the Keynesian model below. C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y What is the marginal propensity to save?

0.25

If the consumption function is C = 50 + 0.75y, then the marginal propensity to consume is:

0.75

In the simple Keynesian cross model with no government or foreign sectors, the value of the multiplier is defined as:

1/(1-MPC)

The following questions refer to the Keynesian model below. C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y At the equilibrium level of output, y*, what is the level of imports?

100

The following questions refer to the Keynesian model below. C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y What is the equilibrium level of output, y*?

1000

The following questions refer to the Keynesian model below. C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y If exports increase by 100 (X=175), what is the new equilibrium level of output?

1286

Let C = 100 + 0.6y and I = 150. At the equilibrium level of income, y*, the level of savings is:

150

The following questions are based upon the Keynesian model below. C = 50 + 0.8(y - T) I = 200 G = 150 T = 100 What is the equilibrium level of output?

1600

The following questions refer to the Keynesian model below. C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y What is the value of the government spending multiplier?

2.86

Let C = 25 + 0.75y and I = 50. Assume no government or foreign sectors. If investment increases by 150, then the value of the multiplier is:

4

The following questions are based upon the Keynesian model below. C = 50 + 0.8(y - T) I = 200 G = 150 T = 100 What is the value of the government spending multiplier?

5

If the consumption function is C = 50 + 0.75y, then the level of autonomous consumption is:

50

Let C = 100 + 0.6y and I = 150. Then the equilibrium level of income, y*, is:

625

The following questions refer to the Keynesian model below. C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y If the marginal propensity to import increases to 0.2 (MPM=0.20), what is the new equilibrium level of output?

777.78

What happens when there is an unplanned decrease in inventories?

Actual investment is less than planned investment

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

Aggregate expenditure is greater than GDP

If the demand for goods and services is less than output, then there should be:

An increase in inventories

An increase in transfer payments that smooths fluctuations in GDP is called a(n):

Automatic stabilizer

Which of these statements about autonomous expenditure is correct?

Autonomous expenditure does not depend on the level of GDP

Fluctuations in total spending in the economy may affect:

Both employment and production in the short run

A change in the MPC can occur as a result of

Consumers' perceptions of changes in their incomes and changes in tax rates

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

Consumption spending plus planned investment spending plus government purchase plus net exports

In a simple demand-side model with only consumers and firms, each of which demands a fixed amount of goods, equilibrium occurs where the C + I line:

Crosses the 45-degree line

If firms experience an unplanned increase in inventories, they are likely to:

Decrease production

The multiplier ______ as the marginal propensity to consume increases.

Decreases

When the tax rate increases, the size of the multiplier effect:

Decreases

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

Fall, increase

An increase in household wealth will:

Increase the consumption component of aggregate expidenture

A decrease in the level of imports ________ the demand for goods and service produced in the U.S.

Increases

The multiplier ______ as autonomous consumption increases.

Is constant

The paradox of thrift states that increased household savings will ultimately lead to:

Lower incomes

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

MPC is larger

The percentage of additional income used purchasing imported goods is known as the;

Marginal propensity to import

Which of the following is an example of an automatic stabilizer?

More unemployment benefits are paid during a recession

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

Real GDP in the short-run

When aggregate expenditures are less than the GDP inventories will:

Rise

We would expect the tax multiplier to be __________ in absolute value than the government purchases multiplier.

Smaller

According to Keynes, in the short run the level of output is determined by:

The demand for goods and services

The slope of the consumption function is equal to:

The marginal propensity to consume

Actual investment will equal planned investment only when __________.

There is no unplanned change in inventory

Macroeconomic equilibrium occurs where:

Total spending, or aggregate expenditure, equals total production or GDP

The tax multiplier equals the change in:

equilibrium GDP divided by the change in taxes

In the Keynesian cross model, the 45-degree diagonal represents the:

Set of points where output is equal to demand

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

U.S. net exports will fall

Macroeconomic equilibrium in the short run:

Will occur at a point on the 45 degree line