Exam 11: The Income-Expenditure Model

If the economy has an MPC of 0.8, by how much will a $50 billion increase in government purchases increase GDP? By how much will a $50 billion increase in taxes decrease GDP?

In the income-expenditure model, the 45-degree line

Table 11.1 -Refer to Table 11.1. If exports increase by 20 (X = 100), what is the new equilibrium level of output?

In the income-expenditure model, for each price level there is a different equilibrium output level. If we plot one such equilibrium output and price combination, we obtain

In the income-expenditure model, for each price level there is a different equilibrium output level. These various price level and equilibrium output combinations are used to derive

In an open economy including the government, planned expenditures equals

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

Table 11.1 -Refer to Table 11.1. What is the value of the government spending multiplier?

-In Figure 11.1, a decrease in consumer wealth is represented by a change in the consumption function from

Raising the tax rate lowers the tax-adjusted MPC.

-Refer to Figure 11.4. Which diagram illustrates the effect of an increase in government spending?

If the consumption function is C = 25 + 0.9y and income increases by $100, then autonomous consumption spending will be

How does an increase in the marginal propensity to consume affect the consumption function? What happens to equilibrium output? Illustrate your answer with a graph of 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, studies estimated that a decrease of consumer wealth of $1 would ________ consumption spending by somewhere between ________.

-Refer to Figure 11.5. A decrease in the level of investment is best illustrated by diagram

Keynes advocated the use of taxation and government spending to influence the level of GDP in the short run.

The tax multiplier is calculated as 1 / (1 - b).

The government spending multiplier is equal to the tax multiplier.

A $300 billion decrease in both government spending and taxes will

The multiplier for investment represents the ratio of the change in income to the change in investment spending.