Exam 25: Spending and Output in the Short Run

Automatic stabilizers are provisions in the law that create automatic ________ in government spending or ________ in taxes when real output declines.

The tendency of changes in asset prices to affect spending on consumption goods is called the ________ effect.

The consumption function is the relationship between consumption and:

In the Keynesian model, a $1 billion increase in autonomous consumption leads to ________ in short-run equilibrium output.

Refer to the accompanying figure. Based on the figure, the income-expenditure multiplier equals:

Dave's Mirror Company expects to sell $1,000,000 worth of mirrors and to produce $1,250,000 worth of mirrors in the coming year. The company purchases $300,000 worth of new equipment during the year. Sales for the year turn out to be $900,000. Actual investment by Dave's Mirror Company equals ________ and planned investment equals ________.

In the short run, with predetermined prices, when output is greater than planned aggregate expenditures:

Refer to the accompanying figure. Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is ________, and ________ could return the economy to potential output (Y*).

Historically speaking, a one-dollar decrease in household wealth will cause consumer spending to fall by:

The bursting of the housing bubble in 2006 caused ________ to cut back on their spending, thereby shifting the PAE line ________.

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, transfers must be:

A fiscal policy action to close a recessionary gap is to:

Suppose that the owner of a local ice cream store, knowing that demand for ice cream is higher when the weather is warmer, always charges a price in cents for a scoop of ice cream that is equal to two times the current outdoor temperature, measured in Fahrenheit (so that if it is 90 degrees outside, the ice cream is $1.80 per scoop). This type of behavior is ________.

Changes in government purchases affect planned spending:

The vertical intercept of the consumption function equals ________ and the slope equals ________.

A recession in the United States ________ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n)________ output gap in Canada.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*)equals 9,000, then taxes must be ________ by approximately ________ to eliminate any output gap.

The basic Keynesian model is built on the key assumption that:

A decrease in stock prices alters the consumption function by:

The larger the mpc, the ________ the income-expenditure multiplier and the ________ the effect of a change in autonomous spending on short-run equilibrium output.