Exam 11: Expenditure Multipliers: the Keynesian Model

-The above figure shows the AE curve and 45° line for an economy. a) If real GDP equals $8 trillion, how do firmsʹ inventories compare to their planned inventories? b) If real GDP equals $16 trillion, how do firmsʹ inventories compare to their planned inventories? c) What is the equilibrium level of expenditure? Why is this amount the equilibrium?

In the short run, an upward shift in the aggregate expenditure curve leads to a leftward shift in the short-run aggregate supply curve.

Suppose that the slope of the AE curve is 0.80. If prices remain constant and government expenditure increases by $10 billion, what will be the change in real GDP?

What is the difference between induced and autonomous expenditure? Which components of aggregate expenditure fall under which category?

Changes in which of the following will affect the size of the multiplier? I. marginal propensity to import II. marginal propensity to consume III. marginal income tax rate

When Audreyʹs disposable income is $40,000, her consumption expenditure is $39,000. When her disposable income is $50,000, Audreyʹs consumption expenditure is $47,000. What is Audreyʹs marginal propensity to consume?

In the short run, a factor that leads to changes in U.S. imports is

If the price level is constant and the slope of the AE curve is 0.75, a decrease in investment of $100 leads to a decrease in real GDP of

-In the above figure, a change in autonomous consumption to $4 trillion with no change to the MPC Would cause the consumption function to

Real GDP (dollars) Consumption expenditure (dollars) Investment (dollars) Government expenditure (dollars) 3,000 2,500 500 500 4,000 3,250 500 500 5,000 4,000 500 500 6,000 4,750 500 500 7,000 5,500 500 500 8,000 6,250 500 500 -In the above table, there are no taxes and no imports or exports. If current real GDP is equal to $7,000, then firms will

If there are no income taxes or imports, the multiplier equals

What is the mathematical formula for the multiplier? Why is there a multiplier?

An economy has no imports and no taxes. The marginal propensity to save is 0.2. The multiplier is ___________ so a___________ increase in autonomous expenditure increases equilibrium expenditure by $60 billion.

Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its ʺ... factories have been exposed to ... competition from China, India and other Asian mass producers.ʺ As a result, ʺthe main export industry has seen a 30 per cent reduction in volume ...ʺ The decrease in exports represents a change in __________expenditure and will cause __________.

An increase in expected future income___________.

-In the above figure, equilibrium expenditure along AE₂ is

-In the above figure, when disposable income is greater than $12 trillion, then

An increase in disposable income shifts

A decrease in autonomous expenditure shifts the AE curve

Real GDP (dollars) Consumption expenditure (dollars) Investment (dollars) Government expenditure (dollars) 3,000 2,500 500 500 4,000 3,250 500 500 5,000 4,000 500 500 6,000 4,750 500 500 7,000 5,500 500 500 8,000 6,250 500 500 -In the above table, there are no taxes and no imports or exports. The change in unplanned inventories when real GDP is $7,000 is