Exam 10: Income and Expenditures Equilibrium

Consider a closed economy described by AE (aggregate expenditures) = 800,000 + 0.75Y Assume that this economy is initially in equilibrium. But now the government implements a program to improve highways that will cost $1 million. This implies that equilibrium real GDP will:

When the purchasing power of money declines:

The figure given below shows the macroeconomic equilibrium of a country. Figure 10.7 In the figure, C: Consumption I: Investment G: Government expenditure X: Net Exports -Refer to Figure 10.7. What is the size of the GDP gap if potential GDP equals $3,000?

Suppose the multiplier effect for Japan is 0.8 for any $1 billion change in U.S. government purchases. Therefore, Japanese real GDP will rise by $8 billion when U.S. government spending rises by $10 billion.

When the aggregate expenditures function of a closed economy is plotted against real GDP, any point on the 45-degree line represents C + I + G = Y, where C = Consumption, I = Investment, G = Government spending, and Y = Real GDP.

Other things equal, a reduction in personal income taxes will decrease consumption and will have an expansionary effect on real GDP.

Scenario 10.1 Imagine an economy that does not have international trade and is initially in equilibrium. Later the government increases the level of spending by $350 million because it received a gift from abroad. In this economy, only 65 cents of every dollar is spent, and the rest is saved. -What is the marginal propensity to consume for the economy described in Scenario 10.1?

If 81 percent of Canada's exports go to the United States, a recession in the United States would probably:

Suppose an economy operates at a real GDP level of $855, where saving = $400; investment = $95; government spending = $365; taxes = $130; imports = $210; exports = $170. Which of the following statements is true in the light of the given information?

The figure given below represents the leakages and injections in an economy.?Figure 10.2??In the figure:?I, I1: Investment;?G: Government spending;?EX, EX1: Exports;?T: Taxes; and?M: Imports. -Savings are good for a family. If all families increase savings, the economy is better off. This fallacy of composition is called:

The table given below shows the levels of national income (Y) and the corresponding levels of saving (S), investment (I), export (X), and import (M) of an open economy.? -Consider the economy described in Table 10.2. If autonomous saving decreases by $200, what will happen at the current equilibrium level of income?

In reality, the simple spending multiplier [1/(MPS+MPI)] is applicable only to countries whose imports are a substantial fraction of income in foreign countries.

Suppose an economy has a government budget surplus of $100, net exports of -$400, and a planned investment level of $1,000. For this economy to be in equilibrium, saving must equal:

The figure given below represents the leakages and injections in an economy.?Figure 10.2??In the figure:?I, I1: Investment;?G: Government spending;?EX, EX1: Exports;?T: Taxes; and?M: Imports. -Refer to Figure 10.2. Suppose that I+G+EX equals $20 and the economy is in equilibrium. What is the amount of saving when T = $0 and M = $5 at the equilibrium level?

The table given below shows the levels of national income (Y) and the corresponding levels of saving (S), investment (I), export (X), and import (M) of an open economy.? -Consider the economy described in Table 10.2. What is the equilibrium level of real GDP?

In macroeconomics, equilibrium is defined as the point at which:

At each round of the multiplier process, increases in income:

If the spending multiplier equals 6 and equilibrium real GDP is $32 billion below potential real GDP, then total planned expenditures need to decrease by approximately $5.33 billion to close the recessionary gap.

If aggregate expenditures are less than real GDP, then:

The portion of the aggregate supply curve that is a positive function of the general price level represents excess capacity and unemployed resources.