Exam 11: Expenditure Multipliers: the Keynesian Model

Planned saving equals

As disposable income increases, consumption expenditures

-The presence of income taxes and imports make the slope of the aggregate expenditure curve

How do imports and income taxes affect the multiplier? Why do they have this effect?

ʺThe global financial crisis has had a considerable impact on Chinaʹs export growth, which will continue to show weakness with recession in the U.S. and Europe,ʺ said a report by JP Morgan & Co. If Chinese exports continue to decline, the AE curve will shift __________, the price level will__________In the short run and real GDP will__________ in the short run.

The multiplier effect on real GDP occurs because

The slope of the AE curve is .80. What is the multiplier? Everything else the same, by how much does equilibrium aggregate expenditure increase if a) exports increase from $1.75 trillion to $2.25 trillion. b) government expenditure on goods and services decrease from $2.0 trillion to $1.8 trillion. c) investment increases from $1.2 trillion to $2.3 trillion.

Taking into account the upward -sloping short-run aggregate supply curve, the short-run effect of an increase in government expenditure on real GDP is that

You observe that unplanned inventories are increasing. You predict that there will be .

In the aggregate expenditure model, when real GDP is greater than aggregate planned expenditure,

Real GDP C I G X M 100 75 25 95 10 1 200 150 25 95 10 2 300 225 25 95 10 3 400 300 25 95 10 4 500 375 25 95 10 5 600 450 25 95 10 6 700 525 25 95 10 7 800 600 25 95 10 8 900 675 25 95 10 9 1000 750 25 95 10 10 -In the above table, C is consumption expenditure, I is investment, G is government expenditure, X Is exports, and M is imports. All entries are in dollars. What is the equilibrium expenditure?

If real GDP is $13 trillion and planned aggregate expenditure is $13.5 trillion, inventories will be

What is the marginal propensity to consume? Can the marginal propensity to consume be greater than 1?

-In the figure above, the induced consumption when real GDP is $12 trillion is

In an article regarding Bangladeshʹs economy, the author suggests that the government ...ʺ[g]ive double tax breaks on investment dollars. Give a tax break to R&D [research and development]. Give a tax break on donations to educational institutions.ʺ Suppose the multiplier in Bangladesh is 2. As a result of enacting the proposed policies, which of the following describe possible outcomes in the short run? i. an $20 billion increase in investment will increase aggregate expenditure by $40 billion. ii. the AE curve will shift upward. iii. there will be an unplanned increase in inventories.

Which of the following makes the multiplier larger?

The marginal propensity to consume is found by

How is it possible for consumption expenditure to be positive even when disposable income is zero?

ʺThe global financial crisis has had a considerable impact on Chinaʹs export growth, which will continue to show weakness with recession in the U.S. and Europe,ʺ said a report by JP Morgan & Co. If Chinese exports continue to decline, the AE curve will shift__________ , the price level will__________ In the long run and real GDP will __________in the long run.

The vertical distance between the 45-degree line and the consumption line represents