Exam 9: Aggregate Expenditure and Output in the Short Run

Using the table below, answer the following questions. The numbers in the table are in billions of dollars. a.What is the equilibrium level of real GDP? b.What is the MPC? c.If potential GDP is $4 000, is the economy at full employment? If not, what is the condition of the economy? d.If the economy is not at full employment, by how much should government spending increase so that the economy can move to the full employment level of GDP? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

What are the factors that determine consumption expenditure, and which of these factors is the most important? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Economists think that the marginal propensity to consume for the Australian economy is between 0.9 and 0.95. Based on our simple multiplier formula, this would imply that the multiplier for Australia should be at least 10. However, many economists agree that the spending multiplier is closer to 2.0. What might explain this supposed anomaly? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Goods that have been produced but not yet sold are referred to as:

________ spending follows a smooth trend, whereas ________ spending is more volatile and subject to fluctuations.

What impact does a higher price level have on interest rates, wealth and investment spending? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Use the table below to answer the following questions. The numbers in the table are in billions of dollars. a.What is the equilibrium level of real GDP? b.What is the MPC? c.If investment spending declines by 50, what will happen to equilibrium GDP? _____________________________________________________________________________________________ _____________________________________________________________________________________________

What are inventories? What usually happens to inventories at the beginning of a 'contraction' and what usually happens to inventories at the beginning of an 'expansion'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

In Japan from the 1990s to the late 2000s, the interest rates fell to very low levels. However, this failed to stimulate consumption or investment spending. Use the aggregate expenditure model to explain what might have happened. _____________________________________________________________________________________________ _____________________________________________________________________________________________

If planned aggregate expenditure is less than total production, then:

What is the 'marginal propensity to consume'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the following is not one of the four main categories of spending identified by John Maynard Keynes?

When aggregate expenditure is more than real GDP, inventories will increase.

If planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP, then:

Explain, in detail, how the adjustment to macroeconomic equilibrium occurs when spending is less than production. _____________________________________________________________________________________________ _____________________________________________________________________________________________

If the marginal propensity to save is 0.35, the multiplier is 2.86.

Given the following table, fill in the values for savings. The numbers in the table are in billions of dollars. Assume there are no taxes. _____________________________________________________________________________________________ _____________________________________________________________________________________________

'Disposable income' is defined as:

If firms find that consumers are purchasing more than expected, which of the following would you expect?