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

Suppose the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is 0.14.If the net tax rate is 0.1,then what is the marginal propensity to spend in this economy?

Consider a simple macro model with demand-determined output and the following specific parameter values: a) Marginal propensity to consume out of disposable income = 0.6 b) Marginal propensity to consume out of national income = 0.48 c) Marginal propensity to import = 0.23 The simple multiplier without government and foreign trade in this economy is ________ and the simple multiplier with government and foreign trade in this economy is ________.

Suppose exports (X)= 100,real GDP (Y)= 500,and imports are equal to mY,where m is the marginal propensity to import.Net exports would be equal to zero if the marginal propensity to import were

Consider a simple macro model with demand-determined output.Suppose the level of exports decreases unexpectedly by $6 billion.If the government wants to restore the initial equilibrium level of output it could,all other things equal,

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.Equilibrium national income is

Why are exports treated as autonomous expenditure in our simple macro model? Because

The simple macro model that is considered in Chapters 21 and 22 of the textbook is characterized by

In a simple macro model with government and demand-determined output,to raise equilibrium national income by $100 billion,G must be

Consider the government's budget balance.Suppose G = 2500 and the government's net tax revenue is equal to 0.2Y.The government budget is balanced when Y equals

Suppose output is demand determined.An increase in the net tax rate ________ the marginal propensity to spend and thus ________ the simple multiplier.

Consider the government's budget balance.Suppose G = 300 and the government's net tax revenue is equal to 0.14Y.When Y = 2000,the government is running a budget

Consider the simple macro with demand-determined output.If the marginal propensity to consume out of disposable income (MPC)is equal to the marginal propensity to spend out of national income (z),then

Consider the following news headline: "Minister of Defence announces $2 billion purchase of military helicopters." Assuming that aggregate output is demand-determined,and that the helicopters are purchased domestically,what will be the effect of this action,all other things equal,on the AE function and equilibrium national income?

When economists use the term "budget surplus" they are referring to

FIGURE 22-5 Refer to Figure 22-5,Diagram 1.Which of the following fiscal policy measures could the government implement to return national income to the full-employment level of GDP (potential output,Y*)?

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 correctly describes the consumption function for this economy?

Consider the general form of the consumption function in a simple macro model.Once government and taxes are included in the model,desired consumption can be expressed as ________,where a = autonomous consumption,t = net tax rate,Y = national income, = disposable income,and MPC = marginal propensity to consume.

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 equilibrium national income in this economy?

If the price level is taken as given in a simple macro model with demand-determined output,it is implicitly being assumed that

In a simple macro model where the marginal propensity to consume out of disposable income is 0.8,the net tax rate is 0.25,and the marginal propensity to import is 0.12,the simple multiplier will be