Exam 29: The Aggregate Expenditure Model

Econia's real GDP is $500 billion. Full-employment real GDP is $800 billion. The MPC = 2/3. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

When expenditures exceed income, businesses experience:

If the consumption function is C = 40 + .90 (disposable income), what is the expenditure multiplier for the full potential expenditure multiplier effect?

A country's real GDP level is $800 billion, and its full-employment real GDP level is $920 billion. If the MPC = 2/3 and the full potential expenditure multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

The Keynesian perspective includes the view that:

Keynes believed that the main cause of swings in the business cycle is change in:

If the MPC = .8, what is the tax multiplier according to the aggregate expenditures model?

According to the aggregate expenditures model, what is the main determinant of current consumption spending in an economy?

The MPC is .8. Real GDP is $600 billion. The natural rate of real GDP is $800 billion. Policymakers choose to follow the aggregate expenditures model to design a tax policy to move the economy to full employment. Taxes should be:

Macroland's real GDP level is at an equilibrium of $700 billion, and its natural rate of real GDP is $880 billion. The marginal propensity to consume is 2/3. Government leaders decide to use fiscal policy to move the economy to full employment. How much would they choose to change government purchases? Explain how that amount is determined.

Aggregate expenditures is the:

An economy is at a real GDP level of $800 billion. Autonomous planned spending falls by $40 billion. If the MPC = .8, what will be the new real GDP level after the full potential multiplier effect occurs?

Classical economists believe that savings are:

_____ spending includes some autonomous spending and some spending that is dependent on income. _____ spending are solely autonomous.

According to Keynesians, would the expense that is needed to repair a broken window stimulate an economy?

According to Keynes, if there is unemployment, then an increase in aggregate demand will:

(Figure: Aggregate Expenditure Model) The figure shows the aggregate expenditure model. Equilibrium occurs where aggregate expenditure equals:

The paradox of thrift is the idea that an increase in savings can cause:

When an economy is in a recession, where is it producing in relation to its production possibilities frontier?

An unemployment problem can be identified in the aggregate expenditures model when: