Exam 25: Demand-Side Equilibrium: Unemployment or Inflation

Suppose the economy operates at potential output, if the amount that businesses plan to invest is greater than the amount that consumers plan to save, then

The oversimplified multiplier formula assumes that the

Inventory reductions are a signal indicating that

The total expenditure schedule in Macroland begins with these initial levels (in billions of dollars): Income = 1,000; Consumption = 900; Investment = 200; Government = 300; Net Exports = −100.If the MPC = 0.75 and income increases in increments of 200, find the equilibrium level of income.If full employment requires an income level of 2,000, what (if anything) should the government do? Indicate both the direction of the spending change and the size of the spending change.

According to Baumol and Blinder, the real-world multiplier will be smaller than 1/(1 − MPC) because the 1/(1 − MPC) measure is based on

Identify the "oversimplified multiplier formula."

In a simplified circular flow model with no government, in equilibrium, S = I + (X − IM).

Workers in a nearby pizza restaurant may indirectly enjoy income increases from a nearby construction work site.

The full employment level of GDP is sometimes referred to as "potential GDP."

The expenditure schedule and the aggregate demand curve show much the same thing, with one crucial difference-the price level.How does the price level affect the two schedules?

Define the terms recessionary gap and inflationary gap.Why do they occur?

If total spending is less than total output, then price levels will

Figure 9-1 ​ -In Figure 9-1, at $7,000 billion real GDP,

Figure 9-4 ​ -In Figure 9-4, if the economy faces an inflationary gap, what must happen to reach potential GDP?

The formula for the multiplier can be written as change in

When the price level falls,

Equilibrium GDP on the demand side occurs when total spending

The effect throughout the entire economy of one firm's increase in spending will be

For a simple economy (no government, no foreign sector), the condition for equilibrium can be stated correctly as

Figure 9-4 ​ -In Figure 9-4, which expenditure level will result in a recessionary gap?