Exam 29: The Aggregate Expenditure Model

The MPC is 2/3. Real GDP is $500 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:

In the aggregate expenditures model, an economy's equilibrium occurs where the:

Assume that the MPC = .75. The government of Ecoland announces that it will spend an additional $40 billion on flu shot immunizations this year to counteract a growing flu epidemic. If the full multiplier effect occurs, this spending will lead Ecoland's to:

If autonomous spending rises by $8 billion and the MPC = .75, what is the maximum potential impact on GDP after the full multiplier effect?

(Table 2: Economic Data for Four Firms, 2017) Table 2 provides 2017 economic data for four firms. Use the data to determine which firm had unplanned inventory investment of $200,000. Table 2. Economic Data for Four Firms, 2017 Revenue from 2017 Sales Value of 2017 Production Purchases of New Equipment Construction of New Facilities Value of Desired Change in Inventory Firm A \ 10,400,000 \ 10,600,000 \ 300,000 \ 0 \ 0 Firm B \ 10,400,000 \ 10,000,000 \ 100,000 \ 75,000 \ 25,000 Firm C \ 10,400,000 \ 10,200,000 \ 0 \ 0 \ 0 Firm D \ 10,400,000 \ 10,800,000 \ 50,000 \ 100,000 \ 50,000

The MPC = 2/3. Autonomous spending rises by $12 million. What is the maximum potential impact on GDP after the full multiplier effect?

(Figure: Aggregate Expenditure Model) The figure shows the aggregate expenditure model. What is the equilibrium point?

Changes in _____ do NOT cause the aggregate expenditures curve to shift.

Which of the following would cause the aggregate expenditures curve to increase (shift upward)?

Autonomous consumption equals $40 million. When disposable income equals $600 million, planned consumption spending equals $440 million. When disposable income equals $900 million, planned consumption spending equals $640 million. What is the marginal propensity to consume?

According to the aggregate expenditures model, a change in _____ would NOT cause a shift in the aggregate expenditures curve.

Which of the following would cause the aggregate expenditures curve to decrease (shift downward)?

The _____ relationship between consumption spending and income is depicted on:

In the aggregate expenditures model, how can there be autonomous consumer spending when income is zero? What is the source of the funds that are being spent?

If the MPC = 2/3, what is the tax multiplier according to the aggregate expenditures model?

Autonomous planned spending in a country rises by $60 billion when its MPC = 2/3. How much will the equilibrium level of real GDP change according to the aggregate expenditures model with the full potential multiplier effect?

(Table 1: Economic Data for Macroland) Table 1 shows economic data for Macroland. Assume that Macroland is not involved in any international trade. Use the data in Table 1 to determine the level of autonomous spending in Macroland. Table 1. Economic Data for Macroland Income Consumption Spending Government Spending Investment Spending Aggregate Expenditures \ 0 \ 50 billion \ 100 billion \ 50 billion \ 200 billion \ 100 billion \ 120 billion \ 100 billion \ 50 billion \ 270 billion \ 200 billion \ 190 billion \ 100 billion \ 50 billion \ 340 billion \ 300 billion \ 260 billion \ 100 billion \ 50 billion \ 410 billion

The idea that an increase in savings can lead to a reduction in consumer spending and total spending - which leads to fewer jobs, less income, and lower savings - is known as:

The fallacy of the broken window suggests that the repair costs of a broken window:

An assumption that is inconsistent with the aggregate expenditures model is that: