Exam 28: Consumption and the Aggregate Expenditures Model

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.In this model, the multiplier is found using the formula

Figure 13-3 -Refer to Figure 13-3.Suppose the consumption function is given by curve C₁.What will cause an upward shift to curve C₂?

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $12,000.What is the marginal propensity to consume?

Figure 13-5 -Which of the following statements is true about equilibrium in the aggregate expenditures model? I.Equilibrium is found at the level of real GDP at which the aggregate expenditures curve Crosses the 45-degree line. II.In equilibrium, real GDP produced equals aggregate expenditures. III.In equilibrium, inventories equals zero. IV.In equilibrium, real GDP produced equals potential real GDP.

An increase in the price level, all other things unchanged, shifts the aggregate expenditures curve upwards.

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.The marginal propensity to consume is 0.75.Suppose the equilibrium level of real GDP at the prevailing price is $600 billion below potential real GDP.All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?

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

Figure 13-5 -Refer to Figure 13-5.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment.Consider a simple economy where AE = C + I_P, and I_P is autonomous.What is the value of autonomous AE?

In the aggregate expenditures model, if aggregate expenditures are less than real GDP,

An increase in the price level, all other things unchanged, will

Using the aggregate expenditures model, which of the following occurs if aggregate expenditures fall short of real GDP? I.Actual investment exceeds planned investment. II.Unemployment rises. III.The price level will fall. IV.The economy will experience a recessionary gap.

Figure 13-4 -Refer to Figure 13-4.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment.Suppose AE = C + I_P, and I_P is autonomous.What is the value of autonomous AE?

Figure 13-1 -Refer to Figure 13-1.When disposable personal income goes up by $400 billion, personal saving increases by

If real GDP increases from $2,000 to $2,500 and aggregate expenditures increase from $1,900 to $2,200, the slope of the aggregate expenditures curve is

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, a decrease in the price level

Figure 13-6 -Refer to Figure 13-6.Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases.Further, I_P and G are autonomous.Suppose government purchases rise by $100.As a result,

Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $12,000.What is the marginal propensity to save?

Figure 13-1 -Refer to Figure 13-1.Assuming that the relationship between consumption and disposable personal income remains linear throughout its entire range, if disposable personal income were zero, what would personal saving be?

The amount of consumption that would take place if real GDP were zero is called

According to the permanent income hypothesis,