Exam 25: Spending and Output in the Short Run

Refer to the accompanying figure. Based on the Keynesian cross diagram, short-run equilibrium output equals:

Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy can affect ________ as well as aggregate demand and that fiscal policy is ________.

For an economy starting at potential output, an increase in planned investment in the short run results in a(n):

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the mpc equals 0.9, and potential output (Y*)equals 9,000, then transfers must be decreased by approximately ________ to eliminate any output gap.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the mpc equals 0.9, and potential output (Y*)equals 9,000, then taxes must be increased by approximately ________ to eliminate any output gap.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*)equals 11,000, then government purchases must ________ to eliminate any output gap.

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

Menu costs are the costs of:

In the Keynesian model, consumption depends on:

In the basic Keynesian model, a tax increase:

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*)equals 9,000, then transfers must be ________ by approximately ________ to eliminate any output gap.

One potential problem with using fiscal policy to close recessionary output gaps is that:

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, taxes must be:

In the short-run Keynesian model, if the mpc equals 0.8, then to decrease planned aggregate spending by $30 billion at any output level, government spending must be decreased by ________ or net taxes must be increased by ________.

In the basic Keynesian model, a decrease in transfer payments:

Refer to the accompanying figure. Based on the figure, when PAE = 200 + 0.5Y, short-run equilibrium output equals:

In the short-run Keynesian model where the marginal propensity to consume is 0.5, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, government purchases must be:

Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps, are called ________ policies.

In the basic Keynesian model, an increase in government purchases:

Unplanned inventory investment equals zero when: