Exam 8: Aggregate Expenditure and Output in the Short Run

Figure 8.1 Alt text for Figure 8.1: In figure 8.1, a graph comparing real GDP and real aggregate expenditure. Long description for Figure 8.1: The x-axis is labelled, real GDP, Y (trillions of 2002 dollars).The y-axis is labelled, real aggregate expenditure, AE (trillions of 2002 dollars).A line, labelled Y = AE, originates at the vertex and slopes up to the top right corner.Another line, labelled AE1, begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Both these lines intersect at point K, approximately three quarters of the way along both lines.Point J is plotted a little less than half way along the line AE1, to the left of point K.Point L is plotted close to the right end of the line AE1, to the right of point K. -Refer to Figure 8.1.If the economy is at a level of aggregate expenditure given by point K,

In a small economy in 2016, aggregate expenditure was $850 million while GDP that year was $800 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?

Why do economists care about aggregate expenditures?

Consumer spending ________ and investment spending ________.

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million.What is GDP?

The five most important variables that determine the level of consumption are

Given Table 8.8 below, fill in the values for saving.Assume there are no taxes. Table 8.8

For all points below the 45-degree line, planned aggregate expenditure will be less than GDP.

Consumption spending will ________ when disposable income ________.

John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending,

The sum of the marginal propensity to consume and the marginal propensity to save is always equal to

Increases in consumer confidence

The aggregate demand curve shows the relationship between the price level and the level of planned aggregate expenditure in the economy.

If national income increases by $75 million and consumption increases by $15 million, the marginal propensity to consume is

Table 8.2 -Refer to Table 8.2.Using the table above, compute aggregate expenditure and identify the macroeconomic equilibrium.

An increase in the price level results in a(n)________ in household consumption spending and a(n)________ in investment spending.

Firms in a small economy anticipated that inventories would grow over the past year by $750,000, and over that year, inventories grew by exactly $750,000.This implies that

If the marginal propensity to save is 0.25, then a $10,000 decrease in disposable income will

Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain.

When Javier's income increases by $5,000, he spends an additional $3,750 dollars.This implies that his marginal propensity to consume is 0.75.