Exam 13: Consumption and the Aggregate Expenditures Model

Use the following to answer questions Exhibit: Aggregate Expenditures Curve Figure 13-6 -(Exhibit: Aggregate Expenditures Curve) Suppose the government purchases economy rise by $100.What is the new equilibrium level of real GDP?

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 _____.

The current income theory assumes that current consumption is based on the average income people expect to receive for the remainder of their lives.

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

Use the following to answer questions Exhibit: Consumption and Real GDP -According to the permanent income hypothesis,

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

Expenditures that do not vary with the level of real GDP are called

Disposable personal income is

Use the following to answer questions Exhibit: Consumption and Real GDP -The average annual income that people expect to receive for the remainder of their lives is called

Use the following to answer questions Exhibit: Consumption and Real GDP -(Exhibit: Consumption and Real GDP) The marginal propensity to consume equals

Use the following to answer questions Exhibit: Income and Consumption -The amount of consumption that would take place if real GDP were zero is called

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.The marginal propensity to consume is 0.8.Suppose the equilibrium level of real GDP at the prevailing price is $500 billion below potential real GDP.All else constant, by how much should autonomous aggregate expenditures be increased to reach potential output?

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, what is the value of the multiplier if the slope of the aggregate expenditures curve is 0.8?

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption.If government purchases increases by $200 billion, the aggregate expenditures curve will shift up by

Use the following to answer questions Exhibit: Aggregate Expenditures Curve Figure 13-6 -(Exhibit: Aggregate Expenditures Curve) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases.Further, I_P and G are autonomous.If real GDP produced is $4,000, how will equilibrium be restored in the economy?

Use the following to answer questions Exhibit: Real GDP and the Multiplier -(Exhibit: Real GDP and the Multiplier) If government purchases increase by $100 billion, the aggregate expenditures curve will shift up by $_______ billion.

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

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

If consumption is given by C = $10 billion + 0.5Y, and autonomous planned investment, government purchases, and net exports amount to $5 billion, then aggregate expenditures are $20 billion if Y = $10 billion.

If an economy is in equilibrium,