Econ Exam 3
Which of the following factors does not help explain the instability of investment?
Purchases of capital goods are usually nondiscretionary and cannot be postponed.
Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. If productivity increased such that 3,000 units are now produced with the quantity of inputs still equal to 60, then per-unit production costs would
decrease and aggregate supply would increase
The aggregate supply curve (short run)
slopes upward and to the right
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will
increase U.S. imports and decrease U.S. exports
An increase in productivity will
increase aggregate supply
If the price of crude oil decreased, then this would most likely
increase aggregate supply in the U.S.
Refer to the tables of information for a private closed economy. In this economy, a 3 percentage point decrease in the interest rate will
increase equilibrium GDP by $100
Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should
increase government expenditures by $50 billion
Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to
increase government expenditures or reduce taxes
In a recessionary expenditure gap, the equilibrium level of real GDP is
less than full-employment GDP
The most important determinant of consumption and saving is the
level of income
The version of aggregate supply that allows for changes in both product prices and resource prices is the
long run.
Refer to the given graph. A movement from b to a along C1 might be caused by a(n)
recession
In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should
reduce tax rates and/or increase government spending
Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should
reduce taxes by $80 billion
In the diagram, the economy's long-run aggregate supply curve is shown by line
1
In the diagram, the economy's short-run AS curve is line ___, and its long-run AS curve is line ___
2; 1
In the diagram, the economy's short-run AS curve is line ___, and its long-run AS curve is line ___.
2; 1
If the MPS is only half as large as the MPC, the multiplier is
3
An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round. The multiplier in the economy is
4
The figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the highest marginal propensity to consume?
4
The table illustrates the multiplier process resulting from an autonomous increase in investment by $5. The multiplier in this economy is
4
(Advanced analysis) Assume the saving schedule for a private closed economy is S = −20 + 0.2Y, where S is saving and Y is gross domestic product. The multiplier for this economy is
5
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by
A and B.
Refer to the consumption schedule shown in the graph. At income level 3, the amount of saving is represented by the line segment
FG
Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when
GDP is $60 billion
Other things constant, if domestic consumers purchase fewer foreign goods at each level of GDP in the short run,
GDP will rise
Which would most likely shift the aggregate supply curve? A change in the prices of
resources
Refer to the given graph. A shift of the consumption schedule from C2 to C1 might be caused by a(n)
reverse wealth effect, caused by a decrease in stock market prices.
If households consume less at each level of disposable income, they are
saving more
Leakages from the income-expenditure stream are
saving, taxes, and imports
Refer to the figure. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation?
shift aggregate demand by increasing taxes
The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?
Net exports have increased
Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is
$0.70
Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. The per-unit cost of production is
$0.75.
In the accompanying graph, which line might represent an immediate-short-run aggregate supply curve?
2
The table gives aggregate demand and supply schedules for a hypothetical economy. The equilibrium price level will be
200
Which of the following fiscal policy changes would be the most contractionary?
a $10 billion increase in taxes and a $30 billion cut in government spending
Which of the following represents the most contractionary fiscal policy?
a $30 billion decrease in government spending
Which of the following fiscal policy changes would be the most expansionary?
a $40 billion increase in government spending
Refer to the graph. Which of the following changes will shift AD1 to AD2?
a cut in personal and business taxes
Which of the following may shift the consumption schedule upward?
a decrease in interest rates
An appropriate fiscal policy for a severe recession is
a decrease in tax rates
In the accompanying graph, which of the following would shift the investment demand curve from ID2 to ID3?
a more rapid rate of technological progress
Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it is experiencing
a negative GDP gap
The recessionary expenditure gap associated with the recession of 2007-2009 resulted from
a rapid decline in investment spending
An increase in aggregate expenditures resulting from some factor other than a change in the price level is equivalent to
a rightward shift of the aggregate demand curve in the AD-AS model
The following factors explain the inverse relationship between the price level and the total demand for output, except
a substitution effect
C = 40 + 0.8Y Ig = 40 X = 20 M = 30 (Advanced analysis) The equations give information for a private open economy. The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in billions of dollars. This nation is experiencing
a trade deficit
The immediate determinants of investment spending are the
expected rate of return on capital goods and the real interest rate
In the accompanying graph, which of the following would shift the investment demand curve from ID2 to ID3?
falling stock of capital resources while output is high
When the Federal government uses taxation and spending actions to stimulate the economy, it is conducting
fiscal policy
Refer to the diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2,
government should undertake neither expansionary nor contractionary fiscal policy.
Refer to the accompanying information for a closed economy. The addition of a $100 billion lump-sum tax
has no effect on either the MPC or the multiplier.
The variability of business profits
helps explain the instability of investments over time
Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?
higher expected rates of return on investment
A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because
households may save part of the additional income from the tax cut
The determinants of aggregate supply
include resource prices and resource productivity
If MPC = 0.5, a simultaneous increase in both taxes and government spending of $20 will
increase GDP by $20
Which combination of fiscal policy actions would most likely offset each other?
increase both taxes and government spending
Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will
increase by $100 billion.
Refer to the graph, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will
increase by $200 billion
Refer to the graph for a private closed economy. When output or income is $350 billion, there will be
unplanned decreases in inventories
Assume that in a private closed economy, consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus,
unplanned decreases in inventories of $10 billion will occur
Saving is $40 billion and planned investment is $28 billion at the $175 billion level of output in a private closed economy. At this level,
unplanned investment will be positive $12 billion
In the aggregate demand-aggregate supply model, the economy's price level is assumed to be
variable, unlike in the aggregate expenditures model
If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule
will shift downward
Which of the following is incorrect?
When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending.
Which of the following represents the most expansionary fiscal policy?
a $10 billion increase in government spending
Refer to the diagram. The break-even level of income is
$150.
Refer to the accompanying figures, with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), consumption shifts from A2 to A3 because of a change in taxes, then in figure (B) line
B2 will shift to B3.
The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation?
Business costs and wage rates have decreased
In 2008 during the Great Recession, the federal government provided tax rebate checks to taxpayers in the hope that
C would shift up
In a mixed open economy, the equilibrium GDP is determined at that point where
Sa + M + T = Ig + X + G
Suppose that unintended increases in inventories are occurring in a mixed closed economy. We can surmise that
T + Sa > Ig + G
Which of the following is not an effect that occurs when the general price level in our economy increases?
The purchasing power of people's savings will increase
Planned investment plus unintended increases in inventories equals
actual investment
Saving is always equal to
actual investment
If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause
an $8 billion downshift in the consumption schedule
Which event would most likely decrease an economy's exports?
an appreciation of the nation's currency relative to foreign currencies
Which combination of factors would most likely increase aggregate demand?
an increase in consumer wealth and a decrease in interest rates
Which one of the following will cause a movement up along an economy's saving schedule?
an increase in disposable income
Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of
an increase in personal taxes
Which of the following factors would decrease investment demand?
an increase in the cost of acquiring capital goods
The investment demand curve will shift to the left as a result of
an increase in the excess production capacity available in industry
The interest-rate effect suggests that
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
Which of the following effects best explains the downward slope of the aggregate demand curve?
an interest-rate effectCorrect
The long-run aggregate supply analysis assumes that
both input and product prices are variable.
Unintended changes in inventories
bring actual investment and saving into equality at all levels of GDP
The economy starts out with a balanced federal budget. If the government then implements expansionary fiscal policy, then there will be a
budget deficit
The multiplier is useful in determining the
change in GDP resulting from a change in spending.
The multiplier effect relates
changes in spending to changes in real GDP
Refer to the consumption schedule shown in the graph. As income falls from level 3 to level 2, the amount of
consumption decreases and the amount of saving decreases
An increase in household wealth that creates a wealth effect would shift the
consumption schedule upward and the saving schedule downward.
Actual investment is $28 billion and saving is $15 billion at the $166 billion level of output in a private closed economy. At this level,
consumption will be $151 billion
If disposable income decreases from $1,800 to $1,500 and MPC = 0.75, then saving will
decrease by $75
The set of fiscal policies that would be most contractionary would be a(n)
decrease in government spending and an increase in taxes
In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a
decrease in government spending or an increase in taxes
The table shows a private closed economy. All figures are in billions of dollars. An increase in the real interest rate from 2 percent to 6 percent will
decrease the equilibrium level of GDP by $400 billion.
If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n)
expansionary fiscal policy
A newspaper story states, "For the fourth straight quarter, the nation purchased more goods from abroad than ever before." The event described would
increase, decrease, or make no change in the equilibrium level of GDP; we cannot tell from the information given
The goal of expansionary fiscal policy is to increase
real GDP
Fiscal policy is enacted through changes in
taxation and government spending
If the government wishes to increase the level of real GDP, it might reduce
taxes
An upward shift of the saving schedule suggests
that the APC has decreased and the APS has increased at each GDP level
(Last Word) Classical macroeconomics was dealt severe blows by
the Great Depression and Keynes's macroeconomic theory
The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending, assuming that the aggregate supply curve is horizontal across the range of GDP being considered?
$10 billion
If the MPC is 0.8, what change in investment spending is required to effect a total change in income by $60 billion?
$12 billion
The table illustrates the multiplier process resulting from an autonomous increase in investment by $5. The total change in income resulting from the initial change in investment will be
$20
In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by
$20 billion
In the accompanying table for a particular country, C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. If the equilibrium level of real GDP is $43 billion, its level of consumption will be
$26 billion
Refer to the table. All figures are in billions of dollars. Suppose investment is $12 billion and the economy revises its saving plans to save $4 billion less at all levels of income. The new equilibrium GDP will be
$290 billion
The table illustrates the multiplier process resulting from an autonomous increase in investment by $5. The change in income in round two will be
$3.75
Refer to the graph. If this economy was an open economy without a government sector, the level of GDP would be
$300 billion
All figures in the accompanying table are in billions of dollars. Gross investment is $8 billion, net exports are $4 billion, and government collects a lump-sum tax of $30 billion and spends $30 billion. Assume all taxes are personal taxes and that government spending does not entail shifts in the consumption and investment schedules. The equilibrium GDP will be
$310 billion
Assume the MPC is 0.8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by
$40 billion
The table shows a consumption schedule. If disposable income is $550, we would expect consumption to be
$460
(Advanced analysis) If S = −60 + 0.25Y and Ig = 60, where S is saving, Ig is gross investment, and Y is gross domestic product (GDP), then the equilibrium level of GDP is
$480
Refer to the accompanying consumption schedule in an economy. All figures are in billions of dollars. If gross investment is $34 billion, net exports are zero, and there is a lump-sum tax of $30 billion at all levels of GDP, then the after-tax equilibrium level of GDP will be
$540 billion
All figures in the table are in billions of dollars. If this economy were an open economy, the equilibrium GDP would be
$550 billion
The table shows a private open economy. All figures are in billions of dollars. If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be
$650
Refer to the accompanying consumption schedule. If disposable income were $34,000, then the average propensity to save would be about
0.12
Refer to the table. The after-tax MPS shown is
0.33
Refer to the diagram. The marginal propensity to consume is
0.6
Refer to the table. The after-tax MPC in the economy shown is
0.67
The table gives data for a private closed economy. All figures are in billions of dollars. The MPC and multiplier are, respectively,
0.75 and 4
An increase in spending of $25 billion increases real GDP from $600 billion to $700 billion. The marginal propensity to consume must be
0.75, and the multiplier is 4
The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. If plotted on a graph, the slope of the consumption schedule would be
0.9
(Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. The MPC is
0.90
What is the slope of the consumption schedule or consumption line for a given economy?
1 − MPSCorrect
The table gives aggregate demand and supply schedules for a hypothetical economy. If the amount of real output demanded at each price level falls by $200, the equilibrium price level and equilibrium level of real domestic output will fall to
150 and $300, respectively
Refer to the diagram. Assume that for the entire business sector of a private closed economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent; another $15 with an expected rate of return of 15-20 percent; and an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range. Which of the lines on the diagram represents these data?
B
Which of the diagrams for the U.S. economy best portrays the effects of a decrease in the availability of key natural resources?
B
Which of the diagrams for the U.S. economy best portrays the effects of a dramatic increase in energy prices?
B
In a mixed open economy, the equilibrium GDP exists where
Ca + Ig + Xn + G = GDP
Refer to the consumption schedule shown in the graph. At income level 3, the amount of consumption is represented by the line segment
GH
(Consider This) The so-called Paradox of Thrift that became quite obvious in the Great Recession of 2007-2009 does not refer to which of the following?
In trying to spend less now, consumers will end up spending more later on.
Refer to the graph. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?
P2 and Q2
The table gives aggregate demand and supply schedules for a hypothetical economy. If the amount of real output demanded at each price level falls by $200, this might have been caused by
a worsening of business expectations
A decrease in consumer spending can be expected to shift the
aggregate expenditures curve downward and the aggregate demand curve leftward
For a private closed economy, an unintended decline in inventories suggests that
aggregate expenditures exceed production
Refer to the graph. A shift from AS1 to AS2 would be consistent with what economic event in U.S. history?
cost-push inflation in the early 1970s
During the Great Recession of 2007-2009, real interest rates
declined to about zero, and investments also declined sharply
If households in the economy save more of any extra income that they earn, then the multiplier effect will
decrease
The effect of contractionary fiscal policy is shown as a
leftward shift in the economy's aggregate demand curve
You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion, (2) investment = $50 billion, (3) government purchases = $100 billion, and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with closing the GDP gap here?
decrease government spending and increase taxes
If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by
decreasing taxes by $25 billion
Discretionary fiscal policy will stabilize the economy most when
deficits are incurred during recessions and surpluses during inflations
Discretionary fiscal policy will likely cause budget
deficits during recessions and surpluses during periods of demand-pull inflation
Fiscal policy refers to
deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability
Refer to the figure. If the economy is operating at full employment when its aggregate demand curve is AD2, then a further increase in consumption and investment spending will cause
demand-pull inflation, and the new equilibrium output will be more than Q2
If the United States wants to increase its net exports, it might take steps to
depreciate the dollar compared to foreign currencies
When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is
discretionary fiscal policy
Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD2 describes the current situation, appropriate fiscal policy would be to
do nothing since the economy appears to be achieving full-employment real output
If at some level of GDP the economy is experiencing an unintended decrease in inventories,
domestic output will increase
As the consumption and saving schedules relate to real GDP, an increase in taxes will shift
downward both the consumption and saving schedules
Other things being equal, the effect of a downward shift of the economy's net export schedule on equilibrium GDP will be similar to a(n)
downward shift in the consumption schedule
The purchase of capital goods, like ____ consumer goods, can be postponed; it tends to contribute to _____ in investment spending
durable; instability
If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the
economy's MPS is small
A given reduction in government spending will dampen demand-pull inflation by a greater amount when the
economy's aggregate supply curve is steep
Other things equal, the multiplier effect associated with a change in government spending is
equal to that associated with a change in investment or consumption
In an open mixed economy, the inflationary expenditure gap may be described as the
excess of Ca + Ig + Xn + G at the full-employment GDP.
Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with
expansionary fiscal policy
Refer to the given graph. A movement from a to b along C1 might be caused by a(n)
increase in real GDP.
Other things equal, an increase in an economy's exports will
increase its domestic aggregate expenditures and therefore increase its equilibrium GDP
If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be
increased government spending or decreased taxation, or a combination of the two actions
An increase in the aggregate expenditures schedule
increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier
If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by
increasing government spending by $4 billion
In the accompanying graph, which of the following would shift the investment demand curve from ID2 to ID1?
increasing operating costs for capital goods
The short-run aggregate supply curve represents circumstances where
input prices are fixed, but output prices are flexible
Discretionary fiscal policy refers to
intentional changes in taxes and government expenditures made by Congress to stabilize the economy
The aggregate demand curve shows the
inverse relationship between the price level and the quantity of real GDP purchased
If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then, other things equal,
investment will take place until i and r are equal
Discretionary fiscal policy is so named because it
involves specific changes in taxes and government spending undertaken expressly for stabilization at the option of Congress.
Refer to the diagram for a private closed economy. In this economy, investment
is $40 billion at all levels of GDP.
Expansionary fiscal policy is so named because it
is designed to expand real GDP.
A tax reduction of a specific amount will be more expansionary the
larger is the economy's MPC
The numerical value of the multiplier will be smaller the
larger the slope of the saving schedule.
Refer to the diagrams. Other things equal, an interest rate decrease will
leave curve A in place but shift curve B upward
An increase in personal income taxes would shift AD to the
left because C will decrease
During the Great Recession of 2007-2009, the investment demand curve shifted
left because of declines in expected returns
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in investment spending caused by the interest-rate effect of a price-level increase is depicted by the
move from point a to point b in B
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the
move from point a to point b in B
Refer to the figure. The economy is at equilibrium at point B. What would expansionary fiscal policy do?
move the economy from point B towards point A
A change in the amount saved due to a change in income is represented by a
movement along the saving schedule
A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total revenue of $5,200 a year. The current real rate of interest is 7 percent. The firm should
not undertake the investment, because the expected rate of return of 4 percent is less than the real rate of interest.
From the perspective of classical macroeconomic theory, if aggregate spending was temporarily less than output,
product and resource prices would decrease, so that aggregate spending would rise, expanding output
Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. The investment demand curve for this economy is shown in which table?
r I 25% $0 20 5 15 10 10 15 5 20 0 25
Productivity measures
real output per unit of input
The effect of imposing a lump-sum tax is to
reduce the absolute levels of consumption and saving at each level of GDP but to not change the size of the multiplier
If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by
reducing government expenditures by $20 billion
The effect of expansionary fiscal policy is shown as a
rightward shift in the economy's aggregate demand curve
(Consider This) The Paradox of Thrift highlights the idea that
saving more can be bad for the economy during a recession
If net exports decline from zero to some negative amount, the aggregate expenditures schedule would
shift downward
Other things equal, an improvement in productivity will
shift the aggregate supply curve to the right.
Other things equal, a 10 percent decrease in corporate income taxes will
shift the investment demand curve to the right
The accompanying table shows the aggregate demand and aggregate supply schedules for a hypothetical economy. At the price level of 150, there will be a general
shortage in the economy, and output demanded will decrease as the price level rises.
The aggregate supply curve
shows the various amounts of real output that businesses will produce at each price level.
Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the
slope of the consumption schedule is 0.75.
If Trent's MPC is 0.80, this means that he will
spend eight-tenths of any increase in his disposable income
If at a particular price level, real output from producers is greater than real output desired by purchasers, then there will be a general
surplus and the price level will fall
Consumption is $141 billion, planned investment is $15 billion, and saving is $15 billion in a private, closed economy. At this level,
the economy is in equilibrium.
Refer to the graph. Which of the following factors does not explain a movement along the AD curve?
the expenditure multiplier effect
If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes
the foreign purchases effect
Refer to the tables of information for a private closed economy. The data suggest that
the interest rate and the equilibrium GDP are inversely related
Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?
the investment schedule
The value of the multiplier is likely to fall if there is a fall in
the marginal propensity to consume.
If aggregate demand decreases, and, as a result, real output and employment decline but the price level remains unchanged, it is most likely that
the price level is inflexible downward and a recession has occurred
