Exam 11: The Income-Expenditure Model

The tax multiplier is negative because increases in taxes lead to decreases in consumer spending.

The tax multiplier is negative because

Which of the following causes autonomous consumption to decrease?

Assume that GDP = $10,000 and the MPC = 0.75. If policy makers want to increase GDP by 30 percent, and they want to change taxes and government spending by equal amounts, how much would government spending and taxes each need to increase?

Unlike Classical economists, Keynes believed that the economy could be trapped in a depression and not return to full employment without government intervention.

Recall the Application about the impact that home equity values have on consumer spending and wealth to answer the following question(s). From 1997 to mid-2006, housing prices rose nationally by approximately 90 percent and consumer wealth increased by $6.5 trillion, but in the summer of 2006, housing prices began to fall. Home equity is the single largest component of net wealth for most families in the United States, and changes in the value of home equity affect consumer spending. -According to this Application, what is home equity?

Suppose planned expenditures exceed output. Explain how equilibrium is restored in this economy.

Table 11.1 -Refer to Table 11.1. What is the value of the marginal propensity to save?

Suppose policy makers want to increase GDP by $450 billion. If the marginal propensity to consume is 0.9, by how much must government spending increase to achieve this target?

Suppose the overall MPC is 0.9. If a $2 billion increase in imports to the United States will lead to a $10 billion decrease in GDP, the value of the marginal propensity to import must be

Which of the following shifts the entire consumption function upwards?

The formula for the tax multiplier is

Higher tax rates lower the value of the spending multiplier and make the economy more susceptible to shocks.

The marginal propensity to consume (MPC)is equal to

At the equilibrium level of income, the value of consumption is equal to

Why do our political leaders favor exports of U.S. goods and "buy American" policies?

The multiplier increases as the MPC increases.

Let C = 300 + 0.9y and I = 125. The value of the multiplier is

The aggregate demand curve shows the equilibrium output level at different price levels determined from the income-expenditures model.

A movement along the consumption function is the result of a change in