Exam 13: Consumption and the Aggregate Expenditures Model

Let Y = real GDP and Y_d = disposable income. Suppose initially, Y = Y_d and the marginal propensity to consume (MPC) is 0.8. All components of aggregate expenditures except consumption are autonomous. Now suppose the government imposes an income tax rate of 30% on real GDP. As a result, one additional dollar will increase consumption by

An upward shift in the consumption function can be caused by

The notion that a change in autonomous aggregate expenditures produces a larger change in equilibrium real GDP in the aggregate expenditures model is called the

Use the following to answer questions . Exhibit: Real GDP and the Multiplier -(Exhibit: Real GDP and the Multiplier) What is the value of the marginal propensity to consume?

A change in autonomous aggregate expenditures will shift aggregate demand by an amount equal to the change in autonomous aggregate expenditures times the multiplier.

According to the real wealth effect, if you are living in a period of rising price levels, the cost of the goods and services you buy

Suppose that your annual income has averaged $40,000 for the past 10 years and that you expect it will average $40,000 over the next 10 years. If your income this year increases to $50,000 and you increase your consumption expenditures by $10,000, then you are most likely acting according to the

The aggregate demand curve can be derived from the aggregate expenditures curves by

Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases. Consider a simple aggregate expenditures model, where AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous. All other things unchanged, an increase in the price level,

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift upwards?

Use the following to answer questions . Exhibit: Aggregate Expenditures (AE) in a Simplified Economy -(Exhibit: Aggregate Expenditures (AE) in a Simplified Economy) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment. Consider a simple economy that is made up of only two sectors, households and firms, and that all investment is autonomous. Further, disposable personal income = real GDP. Suppose autonomous investment rises by $50 billion. In the short run, this will cause

The amount of consumption that takes place when real GDP equals zero is called induced consumption.

Use the following to answer questions . Exhibit: Aggregate Expenditures and Real GDP 1 -(Exhibit: Aggregate Expenditures and Real GDP 1) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment. Suppose AE = C + I_P. I_P is autonomous and the consumption function is C = $1,000 billion + 0.5Y. If I_P = $2,000 billion, what is the equilibrium level of real GDP?

The slope of the aggregate expenditures curve is given by

Suppose the consumption function is C = $500 + 0.8Y. If Y = $1,000, then induced consumption is

The relationship between aggregate expenditures and real GDP is shown by the

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, the size of the multiplier depends on the

If consumption is $80 billion when income is $100, the most likely value for the marginal propensity to consume is 0.8.

Use the following to answer questions . Exhibit: Income and Consumption -(Exhibit: Income and Consumption) Calculate the marginal propensity to consume based on the information in the table.

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following causes the aggregate expenditures curve to shift upwards?