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The relationship between investment and GDP is shown by the

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investment schedule

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in the aggregate expenditures model, it is assumed that investment

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does not change when real GDP changes

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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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the level of aggregate expenditures in the private closed economy is determined by the

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expenditures of consumers and businesses

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refer to the above data the MPS IS

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3/10

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the equilibrium level of GDP in a private closed economy is where

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aggregate expenditures equal GDP

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in a private closed economy when aggregate expenditures equal GDP

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planned investment equals saving

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in a private closed economy when aggregate expenditures exceeds GDP

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business inventories will fall

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if at some level of GDP the economy is experiencing an unintended decrease in inventories

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domestic output will increase

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if an unintended increase in business inventories occurs

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we can expect businesses to lower the level of production

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for a private closed economy and unintended decline in inventories suggest that

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aggregate expenditures exceed GDP

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for a private closed economy aggregate expenditures consist of

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c+Ig

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when investment remains the same at each level of GDP in a private closed economy , the slope of the aggregate expenditures schedule

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equals the MPC

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Actual investment is 62 billion at an equilibrium output level is

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.10

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if unintended increase in business inventories occur we can expect

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a decline in GDP and rising unemployment

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in a private economy .... investment is equal to saving at all levels of GDP and equilibrium occurs only at the level of GDP where... investment is equal to saving

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actual; planned

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In the aggregate expenditures model, equilibrium GDP IN A PRIVATE CLOSED ECONOMY IS INDICATED BY

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All of the above

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in the aggregate expenditures model, technological progress will shift the investment schedule

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upward and increase aggregate expenditures.

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at equilibrium real GDP in a private closed economy;

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aggregate expenditures and real GPD are equal

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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 180 billion equilibrium level of income saving is 38 billion in a private closed economy planned investment must be

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38 billion equilibrium level of income saving

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saving is always equal to

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actual investment

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actual investment is

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planned investment plus unintended increases inventories

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investment and savings are respectively

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injections and leakages

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imports have the same effect on the current size of GDP

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saving

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exports have the same effect on the current size of GDP

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investment

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at the equilibrium GDP for an open economy

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net exports may be either positive or negative

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other things equal if change in the tastes of consumers causes them to purchase more foreign goods at each level of US GDP

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Us GDP will fall

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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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if net exports are positve

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aggregate expenditures are greater at each level of GDP then when net exports are zero or negative

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other things equal an increase in economy exports will

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increase its domestic aggregate expenditures and therefore increase its equilibrium GDP

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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 a nation imposes tariffs and quotas on foreign products the immediate effect will be to

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increase domestic output and employment

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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 by 100 billion

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if the equilbrium level of GDP in a private open economy is 100 billion and consumption is 700 billion at that level of GDP then

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Ig+Cn must equal 300 billion

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an exchange rate

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is the price at that the currencies of any two nations exchange for one another

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if the unitied states wants to increase its net exports it might take steps to

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increase the dollar price of foreign currencies

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other things equal serious recession in the economies of US trading partners will

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depress real output and employment in the US economy

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In a mixed economy the equilibrium GDP exists where

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Sa+M+T=Ig+X+G

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other things equal, if 100 billion of government purchases G is added to private spending C+Ig+Xn

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...

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in which of the following situation for a mixed economy will the level of GDP expand

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when Ig+X+G exceeds Sa+M+T

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If a lump -sum income tax of 25 billion is levied and the and the MPS is .20 the

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consumption schedule will shirft downward by 20 billion

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Suppose the economy is operating at its ful 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 non inflation GDP government must

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increase taxes by 28 billion

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a 1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP that will 1 decline in taxes because

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a portion of a tax cut will be saved

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ignoring international trade in a mixed economy aggregate expenditures are comprised of

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Ca+Ig+Xn+G

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if APC=.6 and MPC=.7 the immediate impact of an increase in personal taxes of 20 will be to

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decrease consumption by 14

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when the public sector is added to the aggregate expenditures are model

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we add a new leakage in the form of taxes and a new injection in the form of government spending

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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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in a mixed closed economy

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taxes and saving are leak ages while investment and government purchases are injections

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an increase in taxes will have a greater effect on the equilibrium GDP

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the larger the MPC

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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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what do investment and government expenditures have in common

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both represent injection to the circular flow

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taxes represent

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a leakage of purchasing power like, savings

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suppose government finds it can increase the equilibrium real GDP 45 billion by increasing government purchases by 18 billion

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MPS in the economy is .4

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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 the agregate expenditures model an in increase in government spending may

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increase output and employment

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if a 20 billion increase in government expenditures increases equilibrium GDP by 50 billion then

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the MPC for this economy is .6

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a lump sum tax mean that

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the same amount of tax revenue is collected at each level of GDP

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equal increase 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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an inflationary expenditure gap is the amount by which

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aggregate expenditures exceed the full employment level of GDP

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cyclical unemployment in the US is essentially the consequence of

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a deficient level of aggregate expenditures

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the aggregate demand curve

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shows the amount of real output that will be purchased at each possible price level

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the interest rate effect suggest that

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an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending

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the real balances effect indicates that

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a higher price level will decrease the real value of many financial assets and therefore reduce spending

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the foreign purchases effect suggest that an increase in the US price level relative to other countires will

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increase us imports and decrease us exports

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the real balances interest rate and foreign purchases effects all help explain

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why the aggregate demand curve is down sloping

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the factors that affect the amounts that consumers businesses governemtn and foreigners wish to purchase at each price level are the

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determinants of aggregate demand

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Other things equal if the national incomes of the major trading partners of the US were to rise the US

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aggregate demand curve would shift to the right

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other things equal a decrease in the real interest rate will

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expand investment and shift AD curve to the right

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a decline in investment will shift the AD curve

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left by a multiple of the change in investment

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and economy s aggregate demand curve shifts leftward or rightward by more than changes in initial spending because

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multiplier effect

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the economy's long run AS curve assumes that wages and other resources prices

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eventually rise and fall to match upward or downward changes in the price level

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the aggregate supply curbe (short run)

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is steeper above the full employment output than below it

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monopoly or market power is the ability of a firm to

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set its price

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other things equal a reduction in personal and business taxes can be expected to

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increase both aggregate demand and aggregate supply

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prices and wages ten to be

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flexible upward but inflexible downward

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