Exam 11: Expenditure Multipliers

In the economy of Keynesian Island,autonomous consumption expenditure is $50 million,and the marginal propensity to consume is 0.8.Investment is $160 million,government expenditure is $190 million,and net taxes are $250 million.Investment,government purchases,and taxes are constant-they do not vary with income.The island does not trade with the rest of the world. a) Draw the aggregate expenditure curve. b) What is equilibrium real GDP for Keynesian Island? c) What is the size of the multiplier in Keynesian Island's economy? d) If the government increases its purchases by $200 million,what will be the change in the economy's equilibrium real GDP?

If the MPC increases from 0.75 to 0.80 and there are no income taxes or imports,

Real GDP C I G X M 100 75 25 95 10 1 200 150 25 95 10 2 300 225 25 95 10 3 400 300 25 95 10 4 500 375 25 95 10 5 600 450 25 95 10 6 700 525 25 95 10 7 800 600 25 95 10 8 900 675 25 95 10 9 1000 750 25 95 10 10 -In the above table,C is consumption expenditure,I is investment,G is government expenditure,X is exports,and M is imports.All entries are in dollars.What is the equilibrium expenditure?

Equilibrium expenditure is defined as the level of aggregate expenditure where

List and explain factors that influence consumption expenditure.

When real GDP exceeds aggregate planned expenditure,

In 2007,investment in France increased by 7 billion euros. Assume the price level was constant,the multiplier was 5 and the economy was at full employment. As a result,equilibrium expenditure

When autonomous expenditure increases,equilibrium aggregate expenditure

What is the relationship between the slope of the aggregate expenditure curve and the multiplier?

-In the figure above,the multiplier equals

In the above figure,equilibrium expenditure along AE₂ is

If planned expenditures equal $13 trillion when real GDP is $13.5 trillion,then

When disposable income increases from $6 trillion to $6.5 trillion,consumption expenditure increase from $5.5 trillion to $5.9 trillion.The MPC equals

The slope of the consumption function is

If firms' inventories are less than they planned,aggregate planned expenditure is ________ real GDP and firms ________ their production.

The MPC is equal to

Components of aggregate expenditure include saving,consumption expenditure,investment and government expenditure.

Real GDP (dollars) Consumption expenditure (dollars) Investment (dollars) Government expenditure (dollars) 3,000 2,500 500 500 4,000 3,250 500 500 5,000 4,000 500 500 6,000 4,750 500 500 7,000 5,500 500 500 8,000 6,250 500 500 -In the above table,there are no taxes (so that that real GDP equals disposable income) and no imports or exports.If real GDP decreases from $6,000 to $5,000,the marginal propensity to consume is

-In the above figure,if real GDP is greater than $12 trillion,inventories will be

How does the economy adjust so that aggregate planned expenditure equals real GDP?