Exam 11: The Income-Expenditure Model

Recall Application 3, "John Maynard Keynes: A World Intellectual," to answer the following questions: -In the book The Economic Consequences of Peace, Keynes condemned the treaty signed at the end of World War I because:

If autonomous consumption increases, the size of the multiplier would:

Explain what effect an increase in the marginal propensity to save will have on the slope of the demand line and on the size of the multiplier.

-Refer to Table 11.1. The marginal propensity to consume is:

The Jackson Tool Company manufactures only tools. In 2010, Jackson Tools manufactured 20,000 tools, but sold 22,000 tools. In 2010, Jackson Tools' change in inventory was:

The existence of automatic stabilizers causes:

The presence of automatic stabilizers means that federal budget deficit is _______ than it otherwise would be in a recession and _______ than it otherwise would be in an expansion.

If after adding investment (I) to the consumption (C) function, we find that the C+I line is parallel to the consumption function, then:

If taxes and government spending increase by the same amount, GDP will stay constant.

-Refer to Table 11.6. If government spending increases by $100, equilibrium output increases by:

During recessions, automatic stabilizers work to reduce government expenditures and increase government revenues.

-Refer to Table 11.2. If aggregate output equals _______, there will be a $100 unplanned decrease in inventories.

-Refer to Table 11.1. The equation for the aggregate consumption function is:

Figure 11.1 -Refer to Figure 11.1. If the expenditures in the economy correspond to C + I, which of the following points correspond to an equilibrium?

The ratio of changes in the equilibrium level of output to a change in autonomous spending is the:

With the equation M=my, where M is the level of imports and y is real GDP, "m":

Which line is steeper: the 45 degree line or the consumption function?

Assume that C = 150 + 0.9Y and I = 50. The tax multiplier is:

Recall Application 1, "Falling Home Prices, the Wealth Effect, and Decreased Consumer Spending," to answer the following questions: -According to the application, estimates predicted that a decrease in wealth by $1 would cause a decrease in consumption by:

If the marginal propensity to import is 0.2, then a $1,000 increase in income will: