Exam 36: Appendix: Aggregate Expenditure and the Multiplier

Consider the following data. Based on this data, over what range of real GDP (in millions of dollars) will businesses need to sell inventory in order to meet current demand? Real GDP (millions of dollars) Consumptio (millions of dollars) Investment (millions of dollars) Government Expenditure (millions of dollars) Net Exports (millions of dollars) 0 400 525 550 -75 600 800 525 550 -75 1,200 1,200 525 550 -75 1,800 1,600 525 550 -75 2,400 2,000 525 550 -75 3,000 2,400 525 550 -75 3,600 2,800 525 550 -75 4,200 3,200 525 550 -75 4,800 3,600 525 550 -75

Consumption is $60 billion, investment is $54 billion, government expenditure is $47 billion, exports are $34 billion, and imports are $41 billion. What is real GDP if the economy is at macroeconomic equilibrium?

Consider the following data. What is the equilibrium GDP in this economy (in millions of dollars)? Real GDP (millions of dollars) Consumptio (millions of dollars) Investment (millions of dollars) Government Expenditure (millions of dollars) Net Exports (millions of dollars) 0 400 525 550 -75 600 800 525 550 -75 1,200 1,200 525 550 -75 1,800 1,600 525 550 -75 2,400 2,000 525 550 -75 3,000 2,400 525 550 -75 3,600 2,800 525 550 -75 4,200 3,200 525 550 -75 4,800 3,600 525 550 -75

If investment increases:

Consider the following data. What is the equilibrium GDP in this economy (in millions of $)? $\begin{array} { | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Consumption } \\\text { (millions of } \\\text { S) }\end{array} & \begin{array} { c } \text { Investment } \\\text { (millions of } \\\text { \$) }\end{array} & \begin{array} { c } \text { Government } \\\text { Expenditure } \\\text { (millions of }\\\text { \$) }\end{array} & \begin{array} { c } \text { Exports } \\\text { (millions of }\\\text { \$) }\end{array} & \begin{array} { c } \text { Imports } \\\text { (millions of } \\\text { \$) }\end{array} & \begin{array} { c } \text { Real } \\\text { GDP } \\\text { (millions of } \\\text { \$) }\end{array} \\\hline 1,000 & 525 & 575 & 300 & 300 & 1,300 \\\hline 1,400 & 525 & 575 & 300 & 300 & 1,900 \\\hline 1,800 & 525 & 575 & 300 & 300 & 2,500 \\\hline 2,200 & 525 & 575 & 300 & 300 & 3,100 \\\hline 2,600 & 525 & 575 & 300 & 300 & 3,700 \\\hline 3,000 & 525 & 575 & 300 & 300 & 4,300 \\\hline\end{array}$

The Great Depression changed economic thought by:

The difference between the multiplier effect and the fiscal policy reaction is that the multiplier effect:

Which of the following is the monetary policy reaction when a weaker GDP is expected?

If the federal government lowers taxes:

If exports rise and imports fall:

Which of the following figure shows the impact of lower interest rates on investment, on the aggregate expenditure function?

Consider the following data. What is the equilibrium GDP? Real GDP Consumption Investment Government Expenditure Net Exports 0 800 1,050 1,100 -150 1,200 1,600 1,050 1,100 -150 2,400 2,400 1,050 1,100 -150 3,600 3,200 1,050 1,100 -150 4,800 4,000 1,050 1,100 -150 6,000 4,800 1,050 1,100 -150 7,200 5,600 1,050 1,100 -150 8,400 6,400 1,050 1,100 -150 9,600 7,200 1,050 1,100 -150

A rise in the marginal propensity to consume: (i) shifts the aggregate expenditure function downward. (ii) implies a fall in the proportion of income people save when their incomes change. (iii) will decrease the level of equilibrium GDP. (iv) will increase the slope of the aggregate expenditure function.

If investment decreases:

Consumption is $60 billion, investment is $54 billion, government expenditure is $47 billion, exports are $34 billion, and imports are $41 billion. What is aggregate expenditure?

If the marginal propensity to consume is 0.75, how much will GDP change when the government increases spending by $25 billion?

Consumption is $3,600 when income is $4,000, and consumption rises to $4,400 when income is $5,000. What is the marginal propensity to consume?

If the federal government lowers government expenditure:

If the marginal propensity to consume is 0.60, how much will GDP change when the government increases spending by $45 billion?

Which figure shows the impact of a rise in the marginal propensity to consume (MPC) on the aggregate expenditure function?