Exam 9: The Keynesian Model in Action

Exhibit 9-1 GDP and consumption data As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, and net exports are - $0.5 trillion, then equilibrium GDP is:

Exhibit 9-1 GDP and consumption data As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, net exports are - $0.5 trillion, and GDP is $2 trillion, then GDP will:

If aggregate expenditures (AE)are less than aggregate output (real GDP), then firms will:

If the spending multiplier is equal to 5, then a $1 initial increase in investment spending will lead to a:

A $500 increase in investment will shift the aggregate expenditures curve up by:

In the aggregate expenditures model, assume that the MPC is 0.75. An increase in investment spending of $6 billion would produce an ultimate increase in real GDP of:

If MPC = 0.9, equilibrium real GDP is $1,000, and full-employment real GDP is $2,000, then how much should government spending change to bring about full employment?

If the multiplier is 4, equilibrium real GDP is $600 billion, and investment is $25 billion, what will happen if investment increases to $30 billion? Real GDP will:

Assume the economy is in recession, the MPC is 0.80, and an increase of $200 billion in spending is needed in order to reach full employment. The target can be reached if government spending is increased by:

Use the aggregate expenditures model and assume the marginal propensity to consume (MPC)is 0.90. An increase in government spending of $1 billion would result in an increase in GDP of:

The tax multiplier equals 1 - spending multiplier.

In the aggregate expenditures model, if aggregate expenditures (AE)are less than GDP, then GDP decreases.

If real gross domestic product is $2,000 billion and aggregate demand is $2,500 billion, unplanned inventory depletion must be taking place.

If the marginal propensity to save (MPS)is 0.10, the value of the spending multiplier is:

If actual real GDP is greater than the equilibrium level of real GDP (i.e., the aggregate expenditures function is below the 45-degree line), what happens to restore equilibrium to the economy?

Using the aggregate expenditure-output model, assume the aggregate expenditures (AE)line is below the 45-degree line at full-employment GDP. This vertical distance is called a(n):

Use the aggregate expenditures model and assume an economy is in equilibrium at $6 trillion which is $500 billion above full-employment GDP. If the marginal propensity to consume (MPC)is 0.75, full-employment GDP can be reached if government spending:

Suppose that consumers become more pessimistic about the future and, as a result, reduce their consumption by $10 billion. If the marginal propensity to consume is 0.80, how will this $10 billion reduction in consumption affect the equilibrium level of real GDP?

The equilibrium level of real GDP is $5,000 billion, the full employment level of real GDP is $6,000, and the marginal propensity to consume (MPC)is 0.90. Which of the following statements is true ?

Unplanned inventory depletion occurs when real GDP is above its equilibrium level.