Exam 21: The Simplest Short-Run Macro Model

Suppose aggregate output is demand-determined. If the business community decreases its planned investment expenditures by $4 billion, causing equilibrium national income to fall by $20 billion, the marginal propensity to spend must be

The simple multiplier applies to short-run situations in which the price level is constant. The simple multiplier can be defined as

A rise in the real rate of interest the opportunity cost of holding an inventory of a given size, and therefore desired investment expenditure.

The aggregate expenditure AE) function is an upward-sloping curve that describes

The table below shows disposable income and desired consumption for a closed economy with no government. TABLE 21-2 -Refer to Table 21-2. The marginal propensity to consume is equal to

In the simple macro model, desired investment is assumed to be autonomous with respect to national income. Which of the following will cause a shift of the investment function? 1) a decrease in interest rates 2) an increase in firmsʹ optimism about the economy 3) an expectation of a downturn in future economic activity

In a simple macro model, a decrease in householdsʹ wealth is generally assumed to

Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions. 1. the equilibrium condition is Y = C + I 2. the marginal propensity to consume is 0.90 3. the autonomous part of C is $300 4. investment is autonomous and is $100 TABLE 21-3 -Refer to Table 21-3. At the equilibrium level of national income, desired consumption expenditure $billions) will be

Jeff and Loriʹs disposable income rose from $80 000 per year to $84 000 and their desired consumption expenditure rose from $76 000 to $79 000. It can be concluded that their

Which of the following statements must be true in the simple macro model with a closed economy and no government)?

Consider the following information concerning an economy with demand-determined output. There is no government or foreign trade. 1. Y = C + I 2. C = 100 + 0.5Y 3. I = 200 TABLE 21-7 -Refer to Table 21-7. This economyʹs equilibrium level of national income is

The increase in aggregate planned expenditures divided by the change in national income that brought it about is called the

Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions. 1. the equilibrium condition is Y = C + I 2. the marginal propensity to save = 0.25 3. the autonomous part of C is $30 4. investment is autonomous and is $40 TABLE 21-4 -Refer to Table 21-4. At the equilibrium level of national income, desired saving $billions) will be

For firms or individual households, desired expenditure is

FIGURE 21-3 -Refer to Figure 21-3. If national income is Y1 and the aggregate expenditure function is AE1, then desired aggregate expenditure

Consider the simplest macroeconomic model, with a closed economy and no government. If we assume that desired investment is autonomous with respect to national income, then the investment function which graphs desired investment against actual national income) will be

Consider a simple macro model with a constant price level. If the AE function is horizontal, then we know the simple multiplier is

Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions. 1. the equilibrium condition is Y = C + I 2. the marginal propensity to consume is 0.90 3. the autonomous part of C is $300 4. investment is autonomous and is $100 TABLE 21-3 -Refer to Table 21-3. The correct expression for the aggregate expenditure function for this economy is

Suppose aggregate output is demand-determined. If the business community decreases its planned investment expenditures by $4 billion, causing equilibrium national income to fall by $8 billion, the marginal propensity to spend must be

Consider the simplest macro model with demand-determined output, where AE = C + I. Suppose that actual national income is $900 billion and desired consumption plus desired investment is $920 billion. We can expect that