Exam 29: The Aggregate Expenditure Model

When there is positive unplanned investment, firms typically respond by:

When income is $600 million, consumption spending is $500 million. When income is $800 million, consumption spending is $660 million. What is the marginal propensity to consume?

According to the aggregate expenditures model, what happens initially when there is a sudden, unexpected drop in consumer spending?

Why do classical economists believe that expansionary fiscal policies have no impact and are not needed during a recession?

Summarize five key differences in assumptions between the classical economists and Keynes that led him to develop his theories.

Keynes assumed that the price level is _____ when the economy has slack, and that the time period of focus is the:

A government leader who believes that wages and prices are flexible, savings helps an economy, and the long run should be the time period of focus holds a _____ perspective on economic policy.

If the MPS = .1, what is the full potential expenditure multiplier?

In the aggregate expenditures model, the level of expenditures that exists when income is zero is called _____ spending.

An economy is at a real GDP level of $600 billion. Autonomous planned expenditures rise by $20 billion. If the MPC = .75, what will the new real GDP level be after the full potential multiplier effect occurs?

Econia's real GDP is $700 billion. Full-employment real GDP is $900 billion. The MPC = .75. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Econia's real GDP is $600 billion. Full-employment real GDP is $900 billion. The MPC = .8. If the full multiplier effect occurs, which of the following policies would move the economy to a full-employment equilibrium?

Which of the following is NOT an assumption of the classical model in economics?

When the aggregate supply and aggregate demand model is drawn to represent the Keynesian perspective, the short-run aggregate supply curve is:

According to the aggregate expenditures model, when an economy is in equilibrium at an output level that has high levels of unemployment:

How do firms typically respond to a sudden drop in consumer purchases?

How did China's fiscal stimulus policies compare to those in the United States during the Great Recession?

(Figure: Aggregate Expenditure Model 0) The figure shows a recession in the aggregate expenditure model. The full employment level of output is assumed to be $4,000. At lower levels of output, the economy is in a recession. Equilibrium in the aggregate expenditure model may occur below full employment. In Keynes's view, because the economy is at equilibrium at _____, it will remain _____ absent corrective policy measures.

A government announces that it will increase government purchases by $20 billion. If the MPC = .8, what impact will this have on the equilibrium level of real GDP after the full potential expenditure multiplier effect is felt?

(Figure: KSRAS) The figure shows the Keynesian short-run aggregate supply (KSRAS) curve and fiscal policy. What would cause the shift shown in the figure?