Exam 11: The Income-Expenditure Model

Recall Application 3, "John Maynard Keynes: A World Intellectual," to answer the following questions: -According to the application, Keynes argued in his book The General Theory of Employment, Interest and Money that the government needs to adopt active policies such _ , to stimulate the economy.

When the consumption function is expressed as C = 200 + .75(1- t)y where t =0.2, then an increase in income y by 100 will result in an increase in tax collection by:

The size of the multiplier depends on the:

Assume there is no government or foreign sector. If the marginal propensity to save is 0.25, the multiplier is:

In a graph with output on the x- axis and expenditures on the y- axis, a 45- degree line starting from the origin represents the locus of points where:

Assume that the consumption function is C = 200 + 0.8Y. The marginal propensity to consume is:

Suppose investment falls by $200 and equilibrium output falls by $500. Given this information, we know that:

Uncertainty about the future is likely to increase current consumption spending.

The balanced budget multiplier equals:

Which of the following is an example of the use of activist Keynesian fiscal policy in recent times?

If the consumption function is C = 100 + 0.8Y, then the multiplier is:

If an economy's marginal propensity to consume is 0.9 and the marginal propensity to import is 0.1, then an increase in government spending of $2,000 will increase income by:

In a closed economy with no government, explain why saving must equal planned investment in equilibrium.

If the marginal propensity to save is 0.15, the marginal propensity to consume:

Assume that consumption is represented by the following: C = 400 + 0.5Y. Also assume that investment (I) equals 100. (a) Given the information, calculate the equilibrium level of income. (b) Given the information, calculate the level of consumption and saving that occurs at the equilibrium level of income. (c) What is the marginal propensity to save?

The multiplier for taxes can be calculated using which formula?

-Refer to Table 11.6. If net taxes (T) increases by $100, equilibrium output decreases by:

Recall Application 1, "Falling Home Prices, the Wealth Effect, and Decreased Consumer Spending," to answer the following questions: -According to the application, wealth holding in the stock market is generally concentrated among those in

The higher the marginal propensity to consume, the steeper is the slope of the consumption function.

You are given the following income- expenditures model for the economy of Vulcan. C = 200 + 0.8(Y - T) T = 50 G = 100 I = 140 (a) What is the equilibrium level of income in Vulcan? (b) At the equilibrium level of income, what is the amount of consumption? (c) What is the value of the government spending multiplier in this economy? (d) If government spending increases to 150, what is the new level of equilibrium income?