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Exam 11: The Aggregate Expenditures Model

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Question 21

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Refer to the diagrams. The location of curve B depends on the

A) level of real GDP.
B) location of curve A only.
C) interest rate only.
D) interest rate together with the location of curve A.

E) None of the above
F) A) and B)

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Question 22

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Refer to the diagram for a private closed economy. At the $200 level of GDP,

A) consumption is $200 and planned investment is $50, so aggregate expenditures are $250.
B) consumption is $200 and planned investment is $100, so aggregate expenditures are $300.
C) consumption is $250 and actual investment is $50, so aggregate expenditures are $300.
D) aggregate expenditures fall short of GDP, with the result that GDP will decline.

E) A) and B)
F) B) and D)

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Question 23

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If the dollar appreciates relative to foreign currencies, we would expect the

Suppose the economy's multiplier is 2. Other things equal, a $25 billion decrease in government expenditures on national defense will cause equilibrium GDP to

$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Gross Domestic Product } & \text { Consumption } \\\hline \$ 100 & \$ 100 \\\hline 200 & 160 \\\hline 300 & 220 \\\hline 400 & 280 \\\hline 500 & 340 \\\hline 600 & 440 \\\hline\end{array}\\\\\begin{array} { | c | c | } \hline \text { Expected Rate of Return } & \text { Amount of Investment } \\\hline 15 \% & \$ 0 \\\hline 12 & 40 \\\hline 9 & 80 \\\hline 6 & 120 \\\hline 3 & 160 \\\hline 0 & 200 \\\hline\end{array}\end{array}$ Refer to the tables of information for a private closed economy. In this economy, a 3 percentage point decrease in the interest rate will

Refer to the diagram. The impact of the public sector on the equilibrium GDP

Refer to the diagram. If aggregate expenditures in this economy are ( $\left( C + I _ { g } + X _ { n 2 } \right)$ ) , then the equilibrium Levels of GDP and aggregate expenditures will be

SA=−20 + 0.4Y Ig = 25 − 3i (Advanced analysis) The equations refer to a private closed economy, where S is saving, Ig is gross Investment, i is the real interest rate, and Y is GDP. In equilibrium, the level of saving will be

Refer to the diagram for a private closed economy. The upward shift of the aggregate expenditures schedule from $\left( \mathrm { C } + I _ { g } \right) _ { 1 }$ to $\left( \mathrm { C } + I _ { g } \right) _ { 2 }$ reflects

(Advanced analysis) The given equations describe consumption and investment (in billions of dollars) for a private closed economy. C = 60 + 0.6Y I = I0 = 30 In this economy, the equilibrium level of income (Y) is

Refer to the diagrams. Curve A

When investment remains the same at each level of GDP in a private closed economy, the slope of the aggregate expenditures schedule

(Advanced analysis) Assume the saving schedule for a private closed economy is S = −20 + 0.2Y, where S is saving and Y is gross domestic product. The multiplier for this economy is

$\begin{array} { | c | c | c | } \hline G D P ( Y ) & \text { Consumption (C) } & \text { Investment (I) } \\\hline \$ 0 & \$ 60 & \$ 30 \\\hline 100 & 120 & 40 \\\hline 200 & 180 & 50 \\\hline 300 & 240 & 60 \\\hline 400 & 300 & 70 \\\hline 500 & 360 & 80 \\\hline\end{array}$ (Advanced analysis) The table gives data for a private closed economy. The letters Y, C, S, and I are used to represent real GDP, consumption, saving, and investment, respectively. The equation Representing the investment schedule for the economy is

Assume the MPC is 0.8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by

(Advanced analysis) The given equations describe consumption and investment (in billions of dollars) for a private closed economy. C = 60 + 0.6Y I = I0 = 30 In equilibrium, the level of saving will be

$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Gross Domestic Product } & \text { Consumption } \\\hline \$ 100 & \$ 120 \\\hline 200 & 180 \\\hline 300 & 240 \\\hline 400 & 300 \\\hline 500 & 360 \\\hline\end{array}\\\\\begin{array} { | c | c | } \hline \text { Expected Rate of Return } & \text { Amount of Investment } \\\hline 25 \% & \$ 0 \\\hline 20 & 20 \\\hline 15 & 40 \\\hline 10 & 60 \\\hline 5 & 80 \\\hline\end{array}\end{array}$ Refer to the tables of information for a private closed economy. The data suggest that

For a private closed economy, an unintended decline in inventories suggests that

Unintended changes in inventories

(Advanced analysis) If S = −60 + 0.25Y and Ig = 60, where S is saving, Ig is gross investment, and Y is gross domestic product (GDP) , then the equilibrium level of GDP is