Economics Today The Macro View Ch. 12 Consumption, Real GDP, and the Multiplier – Flashcards

Real Disposable Income

Consumption

Saving

Consumption Goods

Investment

Capital Goods

Life-Cycle Theory of Consumption

Permanent Income Hypothesis

Consumption Function

Dissaving

45-Degree Reference Line

Autonomous Consumption

Average Propensity to Consume - APC

Average Propensity to Save - APS

Marginal Propensity to Consume - MPC

MPC formula

Marginal Propensity to Save - MPS

MPS formula

Net Wealth

Lump-Sum Tax

Multiplier

Current disposable income held to buy consumption goods in the future is referred to as A. autonomous consumption. B. savings. C. saving. D. future consumption. Consumption is a flow or stock variable.

In a simple economy​ (assume there are no​ taxes, thus Y is disposable​ income), the consumption function is C = 1000 + 0.75Y. ​Thus, autonomous consumption is ___ and the marginal propensity to consume is ___. A consumer whose income increases by​ $100 will increase consumption by ​$___. The saving function in this economy​ is: S= ___ + ___Y.

In a simple economy​ (assume there are no​ taxes, thus Y is disposable​ income), the consumption function is C = 250 + 0.8Y. ​Thus, autonomous consumption is ___ and the marginal propensity to consume is ___. A consumer whose income increases by​ $100 will increase consumption by ​$___. The saving function in this economy​ is: S = ___ + ___Y.

1) Saving is the portion of A. disposable income that is not consumed. B. stock of consumption. C. investment that is spent on machinery. D. disposable income that is consumed. 2) Which of the following statements best reflects the relationship between saving and savings​? A. Saving is a flow​ variable; savings is a stock variable. B. Saving is the total amount not consumed whereas savings refers to the amount placed into a savings account. C. Saving and savings are both stock variables. D. Saving and savings are both flow variables.

1) When government spending and net exports are added into the Keynesian model A. there is only a movement along the aggregate expenditure curve. B. the​ 45-degree curve shifts upward. C. the slope of the aggregate expenditure function rises. D. the aggregate expenditures function shifts. Your answer is correct. 2) Which of the following statements is true concerning the foreign sector in the simple Keynesian​ model? A. Exports are not included as expenditures since they are goods that the home nation ships overseas. B. Net exports are autonomous. C. Imports are not used in the model since they represent the spending on foreign goods by the home​ country's citizens and firms. D. Exports and imports depend on foreign and domestic incomes.

1) The saving function of an economy is shown. Dissaving occurs A. at income levels less than ​$30 billion. Your answer is correct. B. at an income level of ​$30 billion. C. at income levels above ​$30 billion. D. when the MPC​ > MPS. 2) When disposable income increases from​ $0 to ​$30 billion A. consumption also increases by ​$30 billion. B. saving increases by​ $0.10 for each additional dollar of disposable income. C. saving grows at a faster pace than consumption. D. savings equals zero.

Fred's Fish House is contemplating an investment of $50,000 in new shrimp boats and deep fryers. Management of this company predict a 6.3 percent annual return on this investment. The current market rate of interest is 5.6 percent. Fred's Fish House will A. not make the investment since the cost is greater than the expected return. B. not make the investment since the cost is less than the expected return. C. make the investment since the cost is less than the expected return. D. make the investment since the cost is greater than the expected return. At which of the market rates of interest below would Fred's Fish House be inclined to make the​ investment A. ​3.5%. B. ​3%. C. ​2%. D. at any of these interest rates listed.

Given that the MPS in an economy is equal to 0.20​, the multiplier is equal to___. ​(Round your answer to two decimal​ places) Now assume that autonomous real consumption spending is​ $1 trillion. There is no other autonomous spending presently taking place in the economy. The current real GDP is ​$20 trillion. What is the current amount of real consumption in the​ economy? ​$_____ trillion. (Round your answer to two decimal​ places)

With regard to the relationship between the C​ + I​ + G​ + X curve and the aggregate demand​ curve, changes in the price level cause A. a shift of both the aggregate demand and C​ + I​ + G​ + X curves. B. a movement along both the aggregate demand and C​ + I​ + G​ + X curves. C. the aggregate demand curve to shift while it causes a movement along the C​ + I​ + G​ + X curve. D. the C​ + I​ + G​ + X curve to shift while it causes a movement along the aggregate demand curve.

Use the​ identity: Yd = C​ + S as a basis to answer the following questions. 1) In the Keynesian​ model, if disposable income were to increase households would A. decrease both their consumption and saving. B. increase saving and decrease consumption. C. increase consumption and decrease saving. D. increase both their consumption and saving. 2) The relationship between the MPC and the MPS indicates that the entire increase in household disposable income A. is invested and saved. B. is saved. C. is consumed. D. is distributed between consumption and saving.

1) Which of the following statements is true when considering an economy with an​ upward-sloping short-run aggregate supply​ curve? A. The multiplier has its full effect no matter what the economy is experiencing. B. The multiplier has more impact when the economy is experiencing a recessionary gap compared to an inflationary gap. C. The multiplier has an equal but muffled impact when there is either a recessionary or inflationary gap. D. The multiplier has more impact when the economy is experiencing an inflationary gap compared to a recessionary gap. The multiplier is weakened in inflationary gaps because of A. incomes rising faster than the price level. B. increasing returns. C. rapid price level increases. D. economies of scale.

All of the following will cause the planned investment function to shift leftward except A. a decrease in expected profits. B. an increase in business taxation. C. a regression in technology. D. an increase in the interest rate. This is the correct answer. and a decrease in the interest rate causes A. an increase in the amount of real planned investment. B. an increase in the investment function. C. an increase in disposable income. D. a decrease in the investment function.

Use the graph depicting a typical consumption function to answer the questions that follow. a) Autonomous consumption in this model is equal​ to: ​$___trillion. (Enter your answer as a whole​ number) b) If autonomous consumption should increase then A. the slope of the consumption function becomes steeper. B. the slope of the saving function becomes steeper. C. the slope of the consumption function becomes flatter. D. the consumption function shifts upward.

An​ economy's consumption function is depicted in the table below. a) When disposable income is equal to ​$200 billion total unplanned expenditures equal A. ​$250 billion. B. ​$200 billion. C. ​$50 billion. D. ​$360 billion. b)​ Therefore, in this model when​ investment, government spending and net exports are​ included, and the disposable income is ​$200 ​billion, unplanned inventory is valued at A. -0.30. B. ​$-50 billion. C. ​$-110 billion. D. ​$50 billion.

1) In an economy in which the multiplier has the value of 3​, the price level has decreased from 115 to 110. As a​ consequence, there has been a movement along the aggregate demand curve from ​$20 trillion in real GDP to ​$24 trillion in real GDP. What is the marginal propensity to​ save? A. ​$4 trillion. B. 0.33. C. 3. D. 0.67. 2) What was the amount of change in the autonomous expenditures generated by the decline in the price​ level? A. ​$1.33 trillion. B. ​$4 trillion. C. ​$0.33 trillion. D. ​$3 trillion.

In order to understand the outcomes of a model it is necessary to know the assumptions of a model. In the Keynesian​ model, businesses A. have retained earnings. B. pay only sales tax. C. earn no profit. D. pay no indirect taxes. The Keynsian model assumes that international trade A. plays a large role since trade is an important part of every economy. B. plays a small role since exports and imports are minimal for most countries. C. plays no role in the simple model. D. has imports equal to a​ country's exports for simplicity.

1) The greater the value of the marginal propensity to consume A. the greater the value of autonomous consumption. B. the greater the value of the multiplier. C. the greater the value of the marginal propensity to save. D. the smaller the value of the multiplier. 2) The greater the value of the marginal propensity to save A. the greater the value of the marginal propensity to consume. B. the greater the value of the multiplier. C. the greater the value of autonomous consumption. D. the smaller the value of the multiplier.

An​ economy's consumption function is depicted in the table below. a) When disposable income is equal to ​$200 billion total expenditures (including investments) equal A. ​$200 billion. B. ​$50 billion. C. ​$260 billion. D. ​$310 billion. b)​ Therefore, in this model when investment is​ included, when the disposable income is ​$200 ​billion, saving must be equal 10 A. -0.30. B. ​$50 billion. C. ​$-60 billion. D. ​$-110 billion.

A Keynesian consumption function​ (C) is shown in the diagram to the right. Consider the full Keynesian model where expenditures include​ consumption, investment, government​ spending, and net exports. Suppose that investment is ​$2 ​trillion, government spending is ​$3 ​trillion, and net exports is ​$-2 trillion. ​ 1.) Using the line drawing tool​, draw the new expenditures​ function, and label it​ '(C + I​ + G​ + X)'. ​2.) Using the point drawing tool​, indicate the new equilibrium in the​ economy, and label it ​'​B'. Carefully follow the instructions​ above, and only draw the required objects.

When government spending and net exports are added into the Keynesian model A. the​ 45-degree curve shifts upward. B. the aggregate expenditures function shifts. C. the slope of the aggregate expenditure function rises. D. there is only a movement along the aggregate expenditure curve. Which of the following statements is true concerning the foreign sector in the simple Keynesian​ model? A. Imports are not used in the model since they represent the spending on foreign goods by the home​ country's citizens and firms. B. Exports are not included as expenditures since they are goods that the home nation ships overseas. C. Exports and imports depend on foreign and domestic incomes. D. Net exports are autonomous.

If the consumption function is C=50 + 0.75y, then the marginal propensity to consume is?

In the United​ States, resource-using federal government expenditures account for almost 20 percent of real GDP. A. True B. False

The difference between real exports and real imports is called real net exports. A. False B. True

When including​ consumption, investment, government​ expenditures, and net​ exports, the equilibrium level of real GDP is found at the intersection of the C​ + I​ + G​ + X curve and the​ 45-degree reference line. A. True B. False

1)In the Keynesian model equilibrium national income A. occurs when the marginal propensity to consume equals the multiplier. B. equals planned​ consumption, investment,​ government, and net export expenditures. C. equals planned​ consumption, investment,​ government, and import expenditures. D. occurs at the point where the consumption function crosses the​ 45-degree line. 2) If real GDP falls below total planned expenditures the economy will see A. production and employment increases. B. production increases and employment decreases. C. production decreases and employment increases. D. production and employment decreases.

If the consumption function is C=50+0.75y, then the level of autonomous consumption is?

The slope of the consumption function is equal to?

Decreases in consumer confidence shift the consumption function in Figure 10.2 from?

Let C =100 +0.6y and I=150. Then the equilibrium level of income, y* is?

Let C=100+0.6y and I=150. At the equilibrium level of income, y*, the level of savings is?

When we add autonomous​ investment, I​, and autonomous government​ spending, G​, to the consumption​ function, we obtain the C ​+ I ​+ G​ curve, which represents total _____ _____ for a closed economy. In an open​ economy, we add the foreign​ sector, which consists of exports minus​ imports, or net​ exports, X. Total planned expenditures are thus represented by the C​ + I​ + G​ + X curve. Equilibrium real GDP can be found by locating the intersection of the total planned real expenditures curve with the _____ reference line. At that level of real GDP per​ year, planned real consumption plus planned real investment plus real government expenditure plus real net exports will equal real GDP. Whenever total planned real expenditures exceed real​ GDP, there will be unplanned _____ in inventories. Production of goods and services will​ increase, and a higher level of equilibrium real GDP will prevail. Whenever total planned real expenditures are less than real​ GDP, there will be unplanned _____ in inventories. Production of goods and services will​ decrease, and equilibrium real GDP will decrease.

Suppose an economy is depicted by the expenditure function provided​ below: C​ + G​ + I​ + X​ = ​$200​+ 0.75xY​+ ​$250​+ ​$275​+ ​$125 All figures are in billions of dollars. Assume there are no taxes in this nation so disposable income Yd​ = Y. The economy reaches an equilibrium at ​$___ billion. ​(Enter your answer as a whole​ number)

Which of the following statements is true of the multiplier in the Keynesian model when there is​ a(n) increase in autonomous​ expenditures? A. Expenditures increase by the same amount in each round of spending. B. Autonomous expenditures increase by the same proportion during each round of spending. C. Income increases by the same amount in each round of spending. D. Expenditures increase by the same proportion during each round of spending. In this situation in which there is a increase in autonomous​ expenditures, in each successive round that the multiplier is applied A. the MPC becomes larger. B. the MPS becomes larger. C. expenditures increase by a smaller amount than the previous round. D. expenditures decrease by a larger amount than in the previous round.

In an economy in which the multiplier has a value of 4​, the price level has decreased from 115 to 110. As a​ consequence, there has been a movement along the aggregate demand curve from ​$14.0 trillion in real GDP to ​$15.6 trillion in real GDP. This​ economy's marginal propensity to save is ____. ​(Enter your response in decimal form​). The amount of the change in autonomous expenditures generated by the decline in the price level​ was, in​ billions, ​$___.

Given that the MPS in an economy is equal to 0.10​, the multiplier is equal to ___. ​(Round your answer to two decimal​ places) Now assume that autonomous real consumption spending is​ $1 trillion. There is no other autonomous spending presently taking place in the economy. The current real GDP is ​$12 trillion. What is the current amount of real consumption in the​ economy? ​$_________ trillion. ​ (Round your answer to two decimal​ places)

The marginal propensity to consume in an economy is 0.80. Thus, if the price level is​ fixed, a ​$400 increase in investment would be expected to increase real GDP by ​$___. ​(Round your answer to the nearest​ dollar.) Now suppose that the economy is known to be at a level of GDP that is above full employment and that the price level is not fixed. If the​ short-run aggregate supply curve​ (SRAS) is positively​ sloped, which of the following is the most likely effect of the increase in investment​? A. Aggregate demand will​ increase, and real GDP will increase by less than ​$2000. B. Aggregate demand will​ increase, and real GDP will increase by ​$2000. C. Aggregate demand will​ increase, but real GDP will not change. D. Aggregate demand will​ increase, and real GDP will increase by more than ​$2000. E. Aggregate demand will not​ change, and real GDP will increase by less than ​$2000.

At an initial point on the aggregate demand​ curve, the price level is​ 125, and real GDP is​ $10 trillion. When the price level falls to a value of​ 120, total autonomous expenditures increase by ​$800 billion. The marginal propensity to consume is 0.6. The level of real GDP at the new point on the aggregate demand curve is A. ​$14.4 trillion B. ​$2 trillion C. ​$10.8 trillion D. ​$12 trillion.

In the simple Keynesian cross model with no gov't or foreign sectors, the value of the multiplier is defined as?

Let C = 25 + 0.75y and I=50. If investment increases by 150, then the value of the multiplier is?

The multiplier _____ as the marginal propensity to consume increases.

C=50+0.8 (y-T) I=200 G=150 T=100 What is the equilibrium level of output?

C=50+0.8 (y-T) I=200 G=150 T=100 What is the value of the gov't spending multiplier?

If taxes decrease by 50, then the change in output is?

Suppose the marginal propensity to consume for the U.S is 0.7. If policy makers wish to increase GDP by 50 billion how much does gov't spending have to increase to meet this target?

C= 100+0.75(y-T) I=100 G=150 T=100 X=75 M=0.10y What is the marginal propensity to save?

A decrease in the level of imports _____ the demand for goods and services produced in the U.S.

The following equations describe​ consumption, investment, government​ spending, taxes, and net exports in the country of Economika. C=200+0.75​(Y-​T) I=500 G=450 T=450 X=50 In​ Economika, equilibrium GDP is equal to ​$_____. ​(Round your answer the nearest​ dollar.) If real GDP in Economika is currently ​$4,450, which of the following is​ true? A. There will be an unplanned increase in​ inventories, and real GDP will increase next period. B. There will be an unplanned increase in​ inventories, and real GDP will decrease next period. C. There will be an unplanned decrease in​ inventories, and real GDP will increase next period. D. There will be an unplanned decrease in​ inventories, and real GDP will decrease next period. E. There will be no unplanned change in​ inventories, and real GDP will stay the same next period.

In a simple economy​ (assume there are no​ taxes; thus, Y is disposable​ income), the consumption function​ is: C = 500 + 0.80Y. The current level of real GDP is ​$4000. At this level of real​ GDP, consumption will be ​$___​, and savings will be ​$___. If GDP were to increase by​ $1000, consumption would increase by ​$___. ​ (Round your responses to the nearest​ dollar.) At a real GDP level of ​$4000​, the average propensity to consume is .93​, and the average propensity to save is .07. ​(Round your answers to two decimal​ places.)

C= 100+0.75(y-T) I=100 G=150 T=100 X=75 M=0.10y What is the value of the gov't spending multiplier?

C= 100+0.75(y-T) I=100 G=150 T=100 X=75 M=0.10y What is the equilibrium level of output, y*?

C= 100+0.75(y-T) I=100 G=150 T=100 X=75 M=0.10y At the equilibrium level of output y*, what is the level of imports?

C= 100+0.75(y-T) I=100 G=150 T=100 X=75 M=0.10y If exports increase by 100 (X=175), what is the new equilibrium level of output?

C= 100+0.75(y-T) I=100 G=150 T=100 X=75 M=0.10y If the marginal propensity to import increases to 0.2, what is the new equilibrium level of output?