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At the current level of real GDP, Sa = $160 Ig = $180 X = $320 M = $280 G = $270 T = $240 (a)What is the size of injections? Leakages? (b)Is GDP at its equilibrium level? Explain. (c)What is the unplanned change in inventories? Explain.

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(a)Injections are $770 ($180 + $320 + $2...

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Explain the difference between planned and actual investment in the economy.Why is the distinction important?

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Actual investment consists of both plann...

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Explain why exports are added to,and imports are subtracted from,aggregate expenditures in moving from a closed to an open economy.

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Exports must be added to aggregate expen...

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If prices are stuck,how can firms receive feedback from the market to tell them how much to produce?

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When underlying conditions cha...

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Explain the effect of an increase in government spending of $50 billion on the economy.Assume that investment,net exports,government expenditures,and taxes do not change with changes in real GDP and the MPC is .75.

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If MPC is .75,the multiplier i...

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Assume the level of investment is $12 billion and independent of the level of total output.Complete the following table and answer the following questions about this private closed economy.

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(a)What are the sizes of the MPC,MPS,a...

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Why does the inclusion of a lump-sum tax cause domestic consumption to fall initially by an amount less than the tax?

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When a lump-sum tax is imposed,disposabl...

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Answer the following questions using the aggregate expenditures model of the economy described below. C = 100 + .8Yd T = 60 + .25Y Ia = 28 Ga = 48 Xa = 54 M = .1Y (a)What are the marginal propensity to consume,the marginal tax rate,and the marginal propensity to import? (b)What is the saving function? What is the marginal propensity to save? (c)What is the aggregate expenditure function? What is autonomous expenditure? What is the marginal propensity to withdraw? (d)What is the equilibrium level of real GDP? (e)What is the size of the multiplier? (f)Suppose the full employment level of real GDP is $380.Does a recessionary gap or an inflationary gap exist? How can the government eliminate the gap by altering government expenditures?

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(a)The marginal propensity to consume is .8,the marginal tax rate is .25,and the marginal propensity to import is .1. (b)The saving function is S = -100 + .2Yd. (c)The aggregate expenditure function is AE = 182 + .5Y.Autonomous expenditure is $182.The marginal propensity to withdraw is .5. (d)The equilibrium level of real GDP is $364. (e)The multiplier is 2 (1/.5). (f)A recessionary gap of $16 exists ($380 - $364).To eliminate the gap,the government must increase its expenditures by $8,which will be multiplied by 2.

Use the graph below to explain the determination of equilibrium GDP by the aggregate expenditures-domestic output approach.At equilibrium C + Ig = Real GDP ($550 + $50 = $600).Why does the intersection of the aggregate expenditures schedule and the 45-degree line determine the equilibrium GDP?

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11ea82f3_ffbf_1cff_9299_832ef9054e4b_TB2474_00 Equilibrium occurs where C + Ig = GDP.There is a direct relationship between aggregate expenditures and the level of GDP,but they are equal only where the AE schedule intersects the 45-degree line,which shows equality of expenditures and GDP.Where aggregate expenditures exceed GDP,the AE line is above the 45-degree line and output will continue to expand.If aggregate expenditures fall below GDP as would occur at levels above 600,then GDP will contract until the expenditures-output equality is restored. The 45-degree line in the aggregate expenditures model represents all of the points where aggregate expenditures are equal to real GDP;all of the possible equilibrium levels.

The aggregate expenditures model has one over-arching assumption.What is this assumption?

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In the aggregate expenditures ...

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What differentiates the planned equilibrium level of investment from disequilibrium levels of investment? Explain.

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Planned investment differs from unplanne...

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Explain the difference between an equilibrium level of GDP and a level of GDP that is in disequilibrium.

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If GDP is not in equilibrium,then aggreg...

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The data in the first two columns below are for a closed economy without government.Use this table to answer the following questions.

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(a)What is the equilibrium GDP for the...

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Answer the following questions using the aggregate expenditures model of the economy described below. C = 90 + .7Yd T = 50 + .2Y Ia = 36 Ga = 45 Xa = 62 M = .16Y (a)What are the marginal propensity to consume,the marginal tax rate,and the marginal propensity to import? (b)What is the saving function? What is the marginal propensity to save? (c)What is the aggregate expenditure function? What is autonomous expenditure? What is the marginal propensity to withdraw? (d)What is the equilibrium level of real GDP? (e)What is the size of the multiplier? (f)Suppose the full employment level of real GDP is $350.Does a recessionary gap or an inflationary gap exist? How can the government eliminate the gap by altering government expenditures?

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(a)The marginal propensity to consume is...

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Use the table below to answer the following questions.Assume that investment,net exports,government expenditures,and taxes do not change with changes in real GDP.

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(a)What is the size of the multiplier ...

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At the current level of real GDP, Sa = $180 Ig = $160 X = $300 M = $280 G = $250 T = $270 (a)What is the size of injections? Leakages? (b)Is GDP at its equilibrium level? Explain. (c)What is the unplanned change in inventories? Explain.

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(a)Injections are $710 ($160 + $300 + $2...

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Whenever there is a shift in the investment schedule and/or the consumption-saving schedules,there will be a new equilibrium level of GDP.Explain why this is so.

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A shift in the investment schedule and/o...

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What is the relationship between actual investment,planned investment,and saving in an economy? What conditions among these concepts produce equilibrium?

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Actual investment consists of both plann...

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Refer to the following table to answer the questions.

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11ea82f3_ffc2_2a48_9299_23fddaa76202_TB2474_00 (a)Assuming that investment,net exports,government expenditures,and taxes do not change with changes in real GDP,what are the sizes of the MPC,the MPS,and the multiplier? (b)If full employment in this economy is 65 million,will there be an inflationary or recessionary gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary or recessionary gap? Explain. (c)Will there be an inflationary or recessionary gap if the full-employment level of output is $250 billion? Explain the consequences.By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary or recessionary gap? Explain. (a)MPC = .8 ($20/$25);MPS = .2 (1 - .8);multiplier = 5 (1/.2). (b)A recessionary gap exists.Equilibrium GDP is $300 billion,while full employment GDP is $350 billion.Employment will be 10 million less than at full employment.Aggregate expenditures would have to increase by $10 billion ($350 - $340)at each level of GDP to eliminate the recessionary gap. (c)An inflationary gap exists.Aggregate expenditures will be excessive,causing demand-pull inflation.Aggregate expenditures would have to fall by $10 billion ($260 - $250)at each level of GDP to eliminate the inflationary gap.

Explain the effect of a cut in lump-sum taxes of $40 billion on the economy.Assume that investment,net exports,government expenditures,and taxes do not change with changes in real GDP and the MPC is .75.How does the impact of this change differ from that of a $40 billion increase in government spending?

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If MPC is .75,the multiplier is 4.A tax ...

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