Exam 11: The Income-Expenditure Model

Recall the Application about the impact that home equity values have on consumer spending and wealth to answer the following question(s). From 1997 to mid-2006, housing prices rose nationally by approximately 90 percent and consumer wealth increased by $6.5 trillion, but in the summer of 2006, housing prices began to fall. Home equity is the single largest component of net wealth for most families in the United States, and changes in the value of home equity affect consumer spending. -According to this Application, falling home equity values have decreased consumer wealth, which is a measure of a consumer's

A downward shift of the planned expenditure curve resulting from an increase in the price level corresponds to

A decrease in price level will

Autonomous consumption is consumer spending which is based on income levels.

-Refer to Figure 11.2. Suppose that Ca = 40, MPC = 0.8, I = 10. Equilibrium income is

Table 11.1 -Refer to Table 11.1. At the equilibrium level of output, y*, what is the trade balance?

Table 11.1 -Refer to Table 11.1. What is the value of the marginal propensity to consume?

Assume that GDP = $10,000 and the MPC = 0.75. If policy makers want to increase GDP by 30 percent, by how much should they increase government spending?

The consumption function describes the relationship between

-Refer to Figure 11.5. An increase in the marginal propensity to import is best illustrated by diagram

The total demand for goods and services at a given price level is also known as

Let C = 70 + 0.75y and I = 40. Assume no government or foreign sectors. Investment needs to increase by ________ to increase equilibrium output by a total of $600.

The balanced-budget multiplier is equal to

In the income-expenditure model, firms stand ready to provide all the output that is demanded.

The formula for the government spending multiplier is

Let C = 40 + 0.8y and I = 10. Autonomous consumption is

Let C = 550 + 0.8y and I = 75. Assume no government or foreign sectors. If investment increases by 100, the equilibrium output increases by a total of

Define the marginal propensity to import.

Why is the tax multiplier smaller (in absolute value)than the autonomous spending multiplier?

-Refer to Figure 11.2. Suppose that Ca = 40, MPC = 0.8, I = 10. The value of autonomous consumption is