Exam 11: The Income-Expenditure Model

Recall the Application about the difficulty in estimating the size of multipliers and the historical record of the size of multipliers to answer the following question(s). -According to this Application, economists Robert Barro and Charles Redlick found that multipliers ________ when there was more unemployment in the economy.

The sum of the marginal propensity to consume (MPC)and the marginal propensity to save (MPS)is

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

Suppose that C =Ca + 0.6y and a shock decreases Ca by $50 billion. Assuming there is no government involvement, by how much will equilibrium GDP decrease?

Name two policies that a Keynesian economist would advocate to influence the level of GDP in the short run.

Figure 11.3 -In Figure 11.3, the multiplier effect resulting from a change in investment spending is represented as the distance between points

If the consumption function is C = 90 + 0.75y, then the level of autonomous consumption is

A nation's exports are NOT impacted by the multiplier effect.

If government increases spending and wants to maintain a balanced budget, it should

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

Figure 11.3 -In Figure 11.3, the change in investment spending is represented as the distance between points

If the marginal propensity to consume is 0.75, then the value of the tax multiplier is

Explain the logic of the multiplier effect.

When prices do not change very much, the income-expenditure model can be used to understand economic fluctuation in the

-In Figure 11.1, an increase in the marginal propensity to save is represented by a change in the consumption function from

What does the investment spending multiplier measure?

The marginal propensity to save (MPS)is equal to

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

Let "C = Ca+ by" define the consumption function. The term "by" is

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