Exam 9: Aggregate Expenditure and Output in the Short Run

Refer to Figure 9.1 for the following questions. Figure 9.1 -In Figure 9.1, if the economy is at a level of aggregate expenditure given by point K:

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

Autonomous expenditure is a type of expenditure that does not depend on:

What does the aggregate expenditure model depict? _____________________________________________________________________________________________ _____________________________________________________________________________________________

You review a salesman's income over a five-year period. You note it fluctuates significantly from year-to-year. Yet his consumption of goods and services remains consistently at the same level, year after year. Does this mean that income is not a determinant of consumption, or could something else explain his behaviour? _____________________________________________________________________________________________ _____________________________________________________________________________________________

On the 45° line diagram, for points that lie below the 45° line:

If the MPC is 0.95, then a $12 million increase in disposable income will:

When there is an unplanned decrease in inventories________.

The aggregate demand curve illustrates the relationship between ________ and the ________, holding constant all other factors that affect aggregate expenditure.

Investment spending will increase when the:

Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the following leads to a decrease in real GDP?

An example of assets that are included in the measure of household wealth would be:

If disposable income falls by $60 billion and consumption falls by $30 billion, then the slope of the consumption function is:

An increase in the real interest rate will:

Discuss the leading drivers of the Great Depression in Australia and use the 45° line diagram to show how those drivers caused a decline in real GDP. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Explain how a stock market crash has the potential to lead to a recession in an economy. _____________________________________________________________________________________________ _____________________________________________________________________________________________

If real GDP is less than planned aggregate expenditure, there will be an unplanned decline in inventories, ultimately leading to a movement up along the aggregate expenditure line.