Ch 11 economics

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Suppose that a mixed open economy is producing at its equilibrium income and that net exports are zero. If at the equilibrium income the public sector’s budget shows a surplus:
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planned investment must exceed savings
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In an effort to stop the U.S. recession of 2007-2009, the federal government
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reduced taxes and increased government spending
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If government spends $80 billion at each level of GDP, and imposes a lump-sum tax of $100
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equilibrium GDP will now be 350
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It is true that
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equal increases in government spending and taxes increase the equilibrium GDP
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If gross investment is $10 at all levels of GDP, the equilibrium GDP will be
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220
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Unintended changes in inventories
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bring actual investment and saving into equality at all levels of GDP
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Other things equal, the slope of the aggregate expenditures schedule will increase as a result of
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an increase in the MPC
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If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to
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increase by $45 billion
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If an unintended increase in business inventories occurs at some level of GDP, then GDP
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is too high for equilibrium
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At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be
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38 million
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Exports have the same effect on the current size of GDP as
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investment
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Equal increases in government purchases and taxes will
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increase the equilibrium GDP and the size of that increase is independent of the size of the MPC
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If the economy was closed to international trade, the equilibrium GDP and the multiplier would be
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$350 and 5
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Classical macroeconomics was dealt severe blows by
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the Great Depression and Keynes’s macroeconomic theory
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In The General Theory of Employment, Interest, and Money
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John Maynard Keynes attacked the classical economist’s contention that recession or depression will automatically cure itself
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Answer the question on the basis of the following consumption and investment data for a private closed economy. Figures are in billions of dollars. C = 60 + .6Y I = I0 = 30
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30
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A recessionary expenditure gap is
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the amount by which the full-employment GDP exceeds the level of aggregate expenditures
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Assume the saving schedule for a private closed economy is S = -20 + .2Y, where S is saving and Y is gross domestic product. The multiplier for this economy is
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5
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An upward shift of the aggregate expenditures schedule might be caused by
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a decrease in imports, with no change in exports
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If gross investment is Ig1, the equilibrium GDP and the level of consumption will be
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h and hf respectively
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Other things equal, an interest rate increase will
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leave curve A in place but shift curve B downward
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Curve A:
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is an investment demand curve and curve B is an investment schedule. and curve B are totally unrelated.
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The marginal propensity to consume is
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fe/de
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Aggregate saving in this economy will be zero when
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GDP is 60 billion
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Gross investment
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is independent of the level of GDP
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At the $200 level of GDP
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consumption is $200 and planned investment is $50 so that aggregate expenditures are $250
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f net exports are Xn2, the GDP in the open economy will exceed GDP in the closed economy by
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bd
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Other things equal, an interest rate reduction coupled with a rightward shift in curve A will
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shift curve B upward
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If the full-employment real GDP is $70, the
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recessionary and inflationary expenditure gaps are both $0
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Actual investment is $62 billion at an equilibrium output level of $620 billion in a private closed economy. The average propensity to save at this level of output is
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0.10
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If government desired to raise the equilibrium GDP to $650, it could
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raise G by $30 or reduce T by $40
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In equilibrium saving will be
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$80
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Actual investment equals savingat all levels of GDP
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at all levels of GDP
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The equation representing the investment schedule for the economy is
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I = 30 + .1Y.
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where S is saving, Ig is gross investment, i is the real interest rate, and Y is GDP
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$65
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In this economy, a 3 percentage point decrease in the interest rate will
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increase equilibrium GDP by $100
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If the real interest rate is 10 percent, the equilibrium GDP will be
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$300
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If net exports are positive
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aggregate expenditures are greater at each level of GDP than when net exports are zero or negative
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If aggregate expenditures exceed GDP in a private closed economy
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planned investment will exceed saving
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in the aggregate expenditures model, a reduction in taxes may
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increase saving
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In which of the following situations for a mixed open economy will the level of GDP expand
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When Ig + X + G exceeds Sa + M + T.
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Which of the following statements concerning the equilibrium level of GDP is incorrect
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Full employment will necessarily be realized
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John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?
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The great depression
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Which of the following would reduce GDP by the greatest amount?
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A $20 billion decrease in government spending
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Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is .5. Aggregate expenditures must have increased by
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$50 billion
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Which of the following statements is correct for a private closed economy?
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Saving equals planned investment only at the equilibrium level of GDP.
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At the equilibrium level of GDP, the APC and APS
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are 5/6 and 1/6 respectively
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Other things equal, curve B will shift upward when
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curve A shifts to the right
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At the $300 level of GDP
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aggregate expenditures and GDP are equal
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All else equal, a large decline in the real interest rate will shift the
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investment schedule upward
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In equilibrium, the level of saving will be:
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$10
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A recessionary expenditure gap exists if
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the aggregate expenditures schedule lies below the 45-degree line at the full-employment GDP
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(Advanced analysis) Answer the question on the basis of the following consumption and investment data for a private closed economy. Figures are in billions of dollars. C = 60 + .6Y I = I0 = 30
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225
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A private closed economy includes:
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households and businesses, but not government or international trade
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If net exports decline from zero to some negative amount, the aggregate expenditures schedule would
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shift downward
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The data suggest that:
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the interest rate and the equilibrium GDP are inversely related
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If the dollar appreciates relative to foreign currencies, we would expect
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a country’s net exports to fall.
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If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is $500 billion
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GDP will remain at $400 billion unless aggregate expenditures change
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In a mixed open economy, the equilibrium GDP exists where
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Ca + Ig + Xn + G = GDP
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Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is .75. The federal government now finds that it must increase spending on military goods by $21 billion in response to deterioration in the international political situation. To sustain full-employment-noninflationary GDP, government must:
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increase taxes by $28 billion
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Which of the following would increase GDP by the greatest amount?
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A $20 billion increase in government spending
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It is true that:
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equal increases in government spending and taxes increase the equilibrium GDP.
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In a mixed open economy, the equilibrium GDP is determined at that point where:
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Sa + M + T = Ig + X + G.
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The after-tax MPC in the economy shown is
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.67
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Other things equal, an interest rate decrease will
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leave curve A in place but shift curve B upward
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The multiplier is
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3
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At the equilibrium level of GDP, investment and saving are both
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$50
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In equilibrium, consumption will be
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$320
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An exchange rate:
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is the price that the currencies of any two nations exchange for one another
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The equilibrium GDP will be
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$400
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The equilibrium level of income (Y) is
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225
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If a lump-sum tax of $40 billion is imposed and the MPC is .6, the saving schedule will shift
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downward by $16 billion.
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If the MPS is .25 and the economy has a recessionary expenditure gap of $5 billion, then equilibrium GDP is
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$20 billion below the full-employment GDP
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If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion, then
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the MPC for this economy is .8.
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If the multiplier in an economy is 5, a $20 billion increase in net exports will
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increase GDP by $100 billion.
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The equilibrium level of GDP is associated with
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no unintended changes in inventories
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Planned investment plus unintended increases in inventories equals
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actual investment
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Saving is always equal to
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actual investment.
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The U.S. recession of 2007-2009 provides a good example of:
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a recessionary expenditure gap
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The mpc and mps are
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both .5
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The sizes of the multipliers associated with changes in investment and government spending in this economy are
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both 2.5
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If the full-employment real GDP is $100, the
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recessionary expenditure gap is $10
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An increase in net exports of $10 would
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increase real GDP by $30
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he equation representing the investment schedule for the economy is
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I = 30 + .1Y.
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Which two aggregate expenditure schedules AE in the diagram for a private closed economy have the same MPC, assuming investment is the same at each level of income?
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I = 30 + .1Y.
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In The General Theory of Employment, Interest, and Money:
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John Maynard Keynes attacked the classical economist’s contention that recession or depression will automatically cure itself
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The equilibrium GDP will be:
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$400
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Given that the interest rate is 10 (percent), the amount that businesses will want to invest will be:
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$40
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If S = -60 + .25Y and Ig = 60, where S is saving, Ig is gross investment, and Y is gross domestic product (GDP), then the equilibrium level of GDP is:
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$480
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At the equilibrium GDP for a private open economy:
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net exports may be either positive or negative.
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Assume in a private closed economy that the equilibrium level of income is $380 and the MPS is .25. Now suppose government collects taxes of $50 and spends the entire amount. As a result:
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the equilibrium level of income will rise to $430.
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At the $370 billion level of DI, the APS is approximately
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4%
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If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by
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$9 billion
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In a mixed open economy, the equilibrium GDP exists where:
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Ca + Ig + Xn + G = GDP.
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If gross investment is $10 at all levels of GDP, the equilibrium GDP will be:
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@220
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The level of aggregate expenditures in a mixed open economy is comprised of
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Ca + Ig + Xn + G.
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The recessionary expenditure gap associated with the recession of 2007-2009 resulted from
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a rapid decline in investment spending
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At the $200 level of GDP:
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consumption is $200 and planned investment is $50 so that aggregate expenditures are $250
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If the full-employment level of GDP is B and aggregate expenditures are at AE2, the
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economy is in equilibrium, at full employment.
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The equation representing the consumption schedule for the economy is
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C = 60 + .6Y.
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A lump-sum tax causes the after-tax consumption schedule
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to be parallel to the before-tax consumption schedule.
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Which aggregate expenditure schedule AE in the diagram for a private closed economy implies the largest MPC, assuming investment is the same at each level of income?
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AE4.
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Other things equal, an increase in an economy’s exports will
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increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.
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In which of the following situations for a mixed open economy will the level of GDP expand?
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When Ig + X + G exceeds Sa + M + T.
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The MPC and MPS are:
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.5
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In this economy, investment
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is $40 billion at all levels of GDP.
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The location of curve B depends on the
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interest rate together with the location of curve A.
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In equilibrium, saving is:
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30
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This nation is incurring
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A TRADE DEFICIT
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Equilibrium Y (= GDP) is:
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300
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The equilibrium GDP for the open economy is
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400
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At equilibrium real GDP in a private closed economy:
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aggregate expenditures and real GDP are equal.
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The multiplier in this economy is
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2.5
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If an additional lump-sum tax of $20 were imposed, we would expect:
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equilibrium GDP to fall by $30
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If the marginal propensity to consume is .9 in a private closed economy, a $20 billion decline in investment spending will decrease:
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saving by 20$
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If government now spends $80 billion at each level of GDP and taxes remain at zero, the equilibrium GDP
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will rise to $500.
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What do investment and government expenditures have in common?
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Both represent injections to the circular flow
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Investment and saving are, respectively
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injections and leakage
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In an aggregate expenditures diagram, a lump-sum tax (T) will
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shift the C + Ig + Xn line downward by an amount equal to T × MPC.
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The effect of imposing a lump-sum tax is to
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reduce the absolute levels of consumption and saving at each level of GDP but to not change the size of the multiplier
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In a mixed open economy, which of the following all affect the equilibrium GDP in the same direction?
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Sa, T, and M.
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The $400 level of GDP is
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If the full-employment level of GDP is B and aggregate expenditures are at AE3, the
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The upward shift of the aggregate expenditures schedule from (C + Ig)1 to (C + Ig)2 reflects
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a large decline in the real interest rate will shift the
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In equilibrium, the level of consumption spending will be
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In equilibrium, the level of consumption will be
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If an unintended increase in business inventories occurs
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If at some level of GDP the economy is experiencing an unintended decrease in inventories:
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The multiplier for this economy is
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Taxes represent
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Which of the following statements is incorrect
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In a private closed economy, when aggregate expenditures equal GDP
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In a private closed economy, when aggregate expenditures equal GDP
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In a private closed economy, when aggregate expenditures equal GDP
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In a private closed economy, when aggregate expenditures equal GDP
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