Exam 11: The Income-Expenditure Model

Recall Application 2, "Using Long-Term Macro Data to Measure Multipliers," to answer the following questions: -According to the application, the multiplier for defense spending during wars was:

For each of the following, indicate if the change would lead to an increase or decrease in the equilibrium level of output. Explain each of your answers. (a) planned investment increases (b) consumers become pessimistic about the future of the economy (c) households begin to save a larger fraction of their income

If a economy's planned expenditures turn out to be greater than production, then inventories will be:

-Refer to Table 11.2. At an aggregate output level of $1000, what will change in order to bring the economy to equilibrium?

The multiplier in an open economy _______ the multiplier in a closed economy.

If the marginal propensity to save is 0.3, the tax multiplier is:

As the marginal propensity to consume decreases, the government spending multiplier increases.

Recall Application 2, "Using Long-Term Macro Data to Measure Multipliers," to answer the following questions: -According to the application, the best time to measure the country's spending multipliers is:

The larger the marginal propensity to save, the smaller the multiplier.

Suppose that in the United States people begin to spend a smaller fraction of their income on imports. This would cause the multiplier to:

Recall Application 1, "Falling Home Prices, the Wealth Effect, and Decreased Consumer Spending," to answer the following questions: -According to the application, one reason why the economy experienced a reduced rate of growth in 2007 was:

An increase in the marginal propensity to import will cause the aggregate expenditure line to:

The level of consumption in the economy when the level of income is zero is called:

An unexpected increase in inventories has a positive effect on future production.

A deterioration in consumer confidence will

Firms react to a unplanned positive inventory investment by increasing output.

If the marginal propensity to consume is 0.9, the tax multiplier is:

The multiplier for a change in taxes is not the same as the multiplier for a change in government spending.

Assume that the consumption function is C = 200 + 0.8Y. The value of the point at which the consumption function intersects the C axis is:

The multiplier is equal to 1/(1 - MPS).