Exam 22: Adding Government and Trade to the Simple Macro Model

Consider the following news headline: "Business community gloomy about the economy-investment plans axed." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Consider the following news headline: "Government follows through on election promise-cuts income-tax rate by 5 percentage points." Assuming that aggregate output is demand-determined,what will be the effect of this action,all other things equal,on the AE function and on equilibrium national income?

Consider the net tax rate,denoted by t.Which of the following correctly defines the net tax rate?

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy: • marginal propensity to consume (mpc)= 0.75 • net tax rate (t)= 0.20 • no foreign trade • fixed price level • all expenditure and income figures are in billions of dollars. FIGURE 22-2 Refer to Figure 22-2.What is the level of autonomous consumption?

Consider the net export function (NX).An increase in foreign income,other things being equal,is assumed to cause the NX function to

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy: • marginal propensity to consume (mpc)= 0.75 • net tax rate (t)= 0.20 • no foreign trade • fixed price level • all expenditure and income figures are in billions of dollars. FIGURE 22-2 Refer to Figure 22-2.Which of the following equations describes the aggregate expenditure function for this economy?

The diagrams below show the import,export,and net export functions for an economy. FIGURE 22-1 Refer to Figure 22-1.The function for desired imports for this economy can be expressed as

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy: • marginal propensity to consume (mpc)= 0.75 • net tax rate (t)= 0.20 • no foreign trade • fixed price level • all expenditure and income figures are in billions of dollars. FIGURE 22-2 Refer to Figure 22-2.What is total autonomous expenditure?

In a simple macro model with a constant price level,a decrease in the net tax rate causes the AE curve to

A fall in domestic prices relative to foreign prices,other things being equal,causes the net export (NX)function to shift ________ and ________.

FIGURE 22-4 Refer to Figure 22-4.The rotation from AE₀ to AE₁ implies that the marginal propensity to spend ________ and the value of the simple multiplier ________.

FIGURE 22-5 Refer to Figure 22-5.Diagram 2 illustrates an economy that is experiencing a(n)________ gap.The goal of stabilization policy would be to ________ national income until it is equal to ________.

In a simple macro model with a constant price level,an increase in the net tax rate causes the AE curve to

Consider the government's budget balance.Suppose G = 500 and the government's net tax revenue is equal to 0.2Y.The government budget is balanced when Y equals

FIGURE 22-5 Refer to Figure 22-5.Diagram 1 illustrates an economy that is experiencing a(n)________ gap.The goal of stabilization policy would be to ________ national income until it is equal to ________.

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy: • marginal propensity to consume (mpc)= 0.80 • net tax rate (t)= 0.15 • no foreign trade • fixed price level • all expenditure and income figures are in billions of dollars. FIGURE 22-3 Refer to Figure 22-3.Which of the following equations describes the aggregate expenditure function for this economy?

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy: • marginal propensity to consume (mpc)= 0.80 • net tax rate (t)= 0.15 • no foreign trade • fixed price level • all expenditure and income figures are in billions of dollars. FIGURE 22-3 Refer to Figure 22-3.Which of the following correctly describes the consumption function for this economy?

Which of the following can cause a parallel upward shift in the net export (NX)function?

When compared to a simple macroeconomic model (with only consumption and investment),adding government and foreign trade to the AE function causes

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy: • marginal propensity to consume (mpc)= 0.80 • net tax rate (t)= 0.15 • no foreign trade • fixed price level • all expenditure and income figures are in billions of dollars. FIGURE 22-3 Refer to Figure 22-3.What is the level of autonomous consumption?