Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Size: px
Start display at page:

Download "Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question."

Transcription

1 Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the Keynesian model of aggregate expenditure, real GDP is determined by the 1) A) level of taxes. B) level of aggregate demand. C) price level. D) level of aggregate supply. 2) The consumption function relates the consumption expenditure decisions of households to 2) A) investment decisions of firms. B) the level of disposable income. C) saving decisions of households. D) the nominal interest rate. 3) As disposable income increases, consumption expenditures 3) A) increase by the same amount. B) increase by a larger amount. C) increase by a smaller amount. D) remain constant. 4) An increase in expected future income. 4) A) shifts the saving function upward B) decreases consumption expenditure C) increases saving D) shifts the consumption function upward 5) In the above figure, consumption and disposable income are equal at 5) A) a saving level of $100 billion and disposable income level of $400 billion. B) a disposable income level of $0. C) a disposable income level of $200 billion. D) any point along the consumption function. 6) In the above figure, at a disposable income level of $200 billion, saving equals 6) A) disposable income. B) consumption expenditures. C) zero. D) $40 billion. 1

2 7) What is the marginal propensity to consume? 7) A) the ratio of the change in consumption expenditure to the change in disposable income. B) the percentage of income that is consumed. C) the percentage of income that is not saved. D) one minus the fraction of total disposable income that is saved. 8) At the level of disposable income where the consumption function crosses the 45-degree line, 8) A) saving is negative. B) the marginal propensity to consume is C) consumption expenditure equals only autonomous consumption expenditure. D) saving is zero. 9) The value of the marginal propensity to consume is 9) A) between -1 and +1. B) between 1 percent and 10 percent. C) between 0 and 1. D) between 1 and ) Suppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumption expenditure increases from $6.8 trillion to. Thus the MPC must equal. A) $7.6 trillion; 0.80 B) $7.8 trillion; 0.80 C) $7.4 trillion; 0.40 D) $8 trillion; ) 11) If the marginal propensity to save is 0.6, then the marginal propensity to consume is 11) A) 1.0. B) 0.4. C) 0.6. D) not determinable. 12) When the consumption function becomes steeper, 12) A) the saving function also become steeper. B) the MPC falls. C) the MPC rises. D) less of every dollar is consumed. 2

3 13) In the above figure, when disposable income is greater than $6 trillion, then 13) A) savings are positive. B) the MPC is greater than 1. C) savings are negative. D) the MPS is negative. 14) Expenditure that does NOT depend on real GDP is called 14) A) autonomous expenditure. B) induced expenditure. C) equilibrium expenditure. D) spurious expenditure. Real GDP C I G NX ) In the above table, C is consumption expenditure, I is investment, G is government expenditure, and NX is net exports. All entries are in dollars. The equilibrium level of real GDP is A) $2,300. B) $2,500. C) $2,400. D) $2, ) In the above table, C is consumption expenditure, I is investment, G is government expenditure, and NX is net exports. All entries are in dollars. The slope of the aggregate expenditure function is A) B) C) D) ) 16) 3

4 17) The figure shows Tropical Isle's aggregate planned expenditure curve. When aggregate planned expenditure is $2 trillion, aggregate planned expenditure is than real GDP, firms' inventories, and firms their production. A) greater; decrease; increase B) less; decrease; increase C) less; increase; decrease D) greater; increase; decrease 17) 18) In the above figure, if the marginal propensity to consume increases, the slope of the AE curve would A) decrease. B) stay the same but the AE curve would shift upwards. C) increase. D) stay the same but the AE curve would shift downwards. 18) 4

5 19) In the above figure, point d represents planned expenditures real GDP. 19) A) less than B) greater than C) equal to D) There is not enough information to answer the question. 20) When autonomous expenditure decreases,. 20) A) there is a movement down along the AE curve B) the AE curve shifts upward C) the AE curve becomes less steep D) the AE curve shifts downward 21) When autonomous expenditure increases, equilibrium aggregate expenditure 21) A) increases by an equal amount. B) decreases by a greater amount due to the multiplier. C) decreases by an equal amount to offset the unplanned portion. D) increases by a greater amount due to the multiplier. 22) If there are no taxes or imports and MPC = 0.75, the multiplier equals 22) A) 6.0. B) C) D) ) Suppose that in 2006 the slope of the AE curve is 0.67 and in 2007 the slope of the AE curve changes to 0.8. Which of the following best describes what happens to the multiplier? A) It rises from 1.25 to B) It falls from 1.49 to C) It falls from 5 to 3. D) It rises from 3 to 5. 23) 24) In the above figure, an increase in autonomous expenditure is depicted by the movement from point E to A) point I. B) point G. C) point H. D) point F. 24) 5

6 25) In the above figure, the increase in autonomous expenditure moves the economy from point E to 25) A) point F. B) point G. C) point I. D) point H. 26) In the above figure, the multiplier is equal to 26) A) three. B) one. C) zero. D) two. 6

7 Answer Key Testname: STUDY QUESTIONS 8 (KEYNESIAN MODEL) 1) B 2) B 3) C 4) D 5) C 6) C 7) A 8) D 9) C 10) A 11) B 12) C 13) A 14) A 15) C 16) A 17) A 18) C 19) A 20) D 21) D 22) D 23) D 24) D 25) B 26) D 7

These are some practice questions for CHAPTER 22. Each question should have a single answer. But be careful. There may be errors in the answer key!

These are some practice questions for CHAPTER 22. Each question should have a single answer. But be careful. There may be errors in the answer key! These are some practice questions for CHAPTER 22. Each question should have a single answer. But be careful. There may be errors in the answer key! 42. With respect to consumption, investment, government

More information

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 27 Expenditure Multipliers 1) Disposable income is A) aggregate income minus transfer

More information

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Fixed Prices and Expenditure Plans. D) the aggregate price level is fixed and that aggregate

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Fixed Prices and Expenditure Plans. D) the aggregate price level is fixed and that aggregate Chapter 13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Fixed Prices and Expenditure Plans Topic: Keynesian Model * 1) In the Keynesian model of aggregate expenditure, real GDP is determined by the A)

More information

Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems

Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems 1. The aggregate expenditure model focuses on the relationship between real spending and. A) short-run; real GDP B) short-run; inflation

More information

Aggregate Expenditure Multiplier

Aggregate Expenditure Multiplier Aggregate Expenditure Multiplier Chapter CHAPTER CHECKLIST Explain how real GDP influences expenditure plans. Aggregate planned expenditure is planned consumption expenditure plus planned investment plus

More information

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts Chapter 3 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded.

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapters 11 & 12 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The Keynesian model of aggregate expenditure describes the economy in A) both

More information

= C + I + G + NX ECON 302. Lecture 4: Aggregate Expenditures/Keynesian Model: Equilibrium in the Goods Market/Loanable Funds Market

= C + I + G + NX ECON 302. Lecture 4: Aggregate Expenditures/Keynesian Model: Equilibrium in the Goods Market/Loanable Funds Market Intermediate Macroeconomics Lecture 4: Introduction to the Goods Market Review of the Aggregate Expenditures model and the Keynesian Cross ECON 302 Professor Yamin Ahmad Components of Aggregate Demand

More information

Chapter 21: The Simplest Short-Run Macro Model. Answers to Study Exercises

Chapter 21: The Simplest Short-Run Macro Model. Answers to Study Exercises Chapter 21: The Simplest Short-Run Macro Model Answers to Study Exercises Question 1 a) C a + I a ( + G a + NX a in an open economy with government) b) C + I ( + G + NX in an open economy with government)

More information

These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key!

These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key! These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key! 67. Public saving is equal to a. net tax revenues minus

More information

The Short-Run Macro Model. The Short-Run Macro Model. The Short-Run Macro Model

The Short-Run Macro Model. The Short-Run Macro Model. The Short-Run Macro Model The Short-Run Macro Model In the short run, spending depends on income, and income depends on spending. The Short-Run Macro Model Short-Run Macro Model A macroeconomic model that explains how changes in

More information

Macro CH 30 sample questions

Macro CH 30 sample questions Class: Date: Macro CH 30 sample questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. During 2008, a country has consumption expenditures of $3.0 trillion,

More information

Aggregate Expenditure

Aggregate Expenditure Aggregate Expenditure CHAPTER30 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Distinguish between autonomous expenditure and induced expenditure

More information

Chapter 12. Aggregate Expenditure and Output in the Short Run

Chapter 12. Aggregate Expenditure and Output in the Short Run Chapter 12. Aggregate Expenditure and Output in the Short Run Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Aggregate Expenditure (AE)

More information

Example 2. When David has no income, he spends $500. If his income increases to $2000, he spends $1900. What is his consumption function?

Example 2. When David has no income, he spends $500. If his income increases to $2000, he spends $1900. What is his consumption function? The Consumption Function The consumption function is an equation describing how a household s level of consumption varies with its disposable income. In order to fully understand the consumption function,

More information

Keynesian cross and multiplier

Keynesian cross and multiplier Keynesian cross and multiplier Giovanni Di Bartolomeo giovanni.dibartolomeo@uniroma1.it Note: These lecture notes are incomplete without having attended lectures Keynesian cross Giovanni Di Bartolomeo

More information

10 EXPENDITURE MULTIPLIERS* Chapter. Key Concepts. The Consumption Function

10 EXPENDITURE MULTIPLIERS* Chapter. Key Concepts. The Consumption Function Chapter 0 EXPENDITURE MULTIPLIERS* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded. As a result: The price

More information

The IS Curve. This lecture describes the relationship between aggregate output and the real interest rate when the goods market is in equilibrium.

The IS Curve. This lecture describes the relationship between aggregate output and the real interest rate when the goods market is in equilibrium. The IS Curve This lecture describes the relationship between aggregate output and the real interest rate when the goods market is in equilibrium. Aggregate Demand: The Basics A. Aggregate demand is the

More information

Micro / Macro Economics. Module 7. Classical Keynesian Economics. Classical Keynesian Economics. Aggregate Expenditure The same as Aggregate Demand

Micro / Macro Economics. Module 7. Classical Keynesian Economics. Classical Keynesian Economics. Aggregate Expenditure The same as Aggregate Demand Micro / Macro Economics Module 7 Classical Keynesian Economics EM1 1 Classical Keynesian Economics Aggregate Expenditure The same as Aggregate Demand Components of AE include: Consumption 55% Investment

More information

Learning Objectives. 1 Desired Aggregate Expenditure

Learning Objectives. 1 Desired Aggregate Expenditure Learning Objectives 1of 30 1. Differentiate between desired expenditure and actual expenditure. 2. Explain the determinants of desired consumption and desired investment expenditures. 3. Define equilibrium

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Econ 111 Summer 2007 Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The classical dichotomy allows us to explore economic growth

More information

1. If the MPS = 0.1, then the value of the multiplier equals: a. 5. b. 10. c. 9. d. 1.

1. If the MPS = 0.1, then the value of the multiplier equals: a. 5. b. 10. c. 9. d. 1. 1. If the MPS = 0.1, then the value of the multiplier equals: a. 5. b. 10. c. 9. d. 1. 2. The marginal propensity to consume (MPC) is equal to the change in: a. consumer spending divided by the change

More information

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

More information

1. What is an investment schedule and how does it differ from an investment demand curve? LO1

1. What is an investment schedule and how does it differ from an investment demand curve? LO1 Chapter 28 The Aggregate Expenditures Model QUESTIONS 1. What is an investment schedule and how does it differ from an investment demand curve? LO1 Answer: An investment schedule shows the level of investment

More information

Module 16 Worksheet. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

Module 16 Worksheet. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question. Name: Class: Date: Module 16 Worksheet Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The marginal propensity to consume is: A. increasing if the marginal

More information

Circular Flows Understanding the macroeconomy involves breaking it down into its separate parts.

Circular Flows Understanding the macroeconomy involves breaking it down into its separate parts. EC 201 Lecture Notes 4 Page 1 of 1 ECON 201 - Macroeconomics Lecture Notes 4 Metropolitan State University Allen Bellas BB Chapter 7 Circular Flows, Consumption and Aggregate Demand Circular Flows Understanding

More information

Pre-Test Chapter 8 ed17

Pre-Test Chapter 8 ed17 Pre-Test Chapter 8 ed17 Multiple Choice Questions 1. The APC can be defined as the fraction of a: A. change in income that is not spent. B. change in income that is spent. C. specific level of total income

More information

Output and Expenditure in the Short Run

Output and Expenditure in the Short Run Chapter 11 (23) Output and Expenditure in the Short Run Chapter Summary Chapter 10 examined the determinants of long-run economic growth. In the short run, however, the economy experiences fluctuations

More information

02 Elementary Keynesian Model

02 Elementary Keynesian Model 02 Elementary Keynesian Model HKAL ECONOMICS PAST PAPER MACRO SECTION A 1. 90(2) In a hypothetical closed economy, C = 50 + 0.8Y I = 20 Y = 10N where C = consumption expenditure, Y = national income I

More information

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions Answers to Text Questions and Problems Chapter 22 Answers to Review Questions 3. In general, producers of durable goods are affected most by recessions while producers of nondurables (like food) and services

More information

ECON 3312 Mcroeconomics Exam 2 Fall 2014 Prof. Crowder

ECON 3312 Mcroeconomics Exam 2 Fall 2014 Prof. Crowder ECON 3312 Mcroeconomics Exam 2 Fall 2014 Prof. Crowder Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) When people are holding money in excess

More information

2. With an MPS of.4, the MPC will be: A) 1.0 minus.4. B).4 minus 1.0. C) the reciprocal of the MPS. D).4. Answer: A

2. With an MPS of.4, the MPC will be: A) 1.0 minus.4. B).4 minus 1.0. C) the reciprocal of the MPS. D).4. Answer: A 1. If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to: A) save is three-fifths. B) consume is one-half.

More information

1 of 20 10/19/2013 1:07 PM

1 of 20 10/19/2013 1:07 PM 1 of 20 10/19/2013 1:07 PM According to Keynesian theory, which of the following is not true at each short-term macro equilibrium? The economy may or may not be at full employment. The aggregate demand

More information

Name: Date: 2. The IS-LM model takes as exogenous. A) the price level and national income B) the price level C) national income D) the interest rate

Name: Date: 2. The IS-LM model takes as exogenous. A) the price level and national income B) the price level C) national income D) the interest rate Name: Date: 1. John Maynard Keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on: A) low levels of capital. B) an untrained labor force. C) inadequate

More information

Using an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on :

Using an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on : Using an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on : The money supply Interest rates Nominal Interest rates i1 i2 Sm1

More information

3 Macroeconomics LESSON 1

3 Macroeconomics LESSON 1 3 Macroeconomics LESSON 1 nesian Model Introduction and Description This lesson establishes fundamental macro concepts. The nesian model is the simplest macro model and is the starting point from the national

More information

Questions for Chapter 4 (part 1)

Questions for Chapter 4 (part 1) Questions for Chapter 4 (part 1) Q1: If you know that the consumption function is C=110+0.75y Find the following: 1. the saving function 2. The amount of income when the savings equals zero 3. Draw the

More information

NATIONAL INCOME DETERMINATION

NATIONAL INCOME DETERMINATION 3/29/26 NATIONAL INCOME DETERMINATION National Income Determination Looks at how the level of real GDP is determined and how it fluctuates around the level of potential GDP. We consider two models of income

More information

The answer is (a) describes the relation between desired consumption expenditures and the factors that determine it, like real disposable income.

The answer is (a) describes the relation between desired consumption expenditures and the factors that determine it, like real disposable income. 1 Solution Set: Chapter 22 Chapter Review: 2. The consumption function The answer is (a) describes the relation between desired consumption expenditures and the factors that determine it, like real disposable

More information

Answers to Text Questions and Problems in Chapter 8

Answers to Text Questions and Problems in Chapter 8 Answers to Text Questions and Problems in Chapter 8 Answers to Review Questions 1. The key assumption is that, in the short run, firms meet demand at pre-set prices. The fact that firms produce to meet

More information

Economics 1012A Introduction to Macroeconomics Fall 2008 Dr. R. E. Mueller Second Midterm Examination October 17, 2008

Economics 1012A Introduction to Macroeconomics Fall 2008 Dr. R. E. Mueller Second Midterm Examination October 17, 2008 Economics 1012A Introduction to Macroeconomics Fall 2008 Dr. R. E. Mueller Second Midterm Examination October 17, 2008 Answer all of the following questions by selecting the most appropriate answer on

More information

The Multiplier Effect of Fiscal Policy

The Multiplier Effect of Fiscal Policy We analyze the multiplier effect of fiscal policy changes in government expenditure and taxation. The key result is that an increase in the government budget deficit causes a proportional increase in consumption.

More information

Lecture Recessions and Fiscal Policy

Lecture Recessions and Fiscal Policy Lecture 5-1 5. Recessions and Fiscal Policy A change in planned autonomous spending (A p ) will cause a change in equilibrium income. Is such a multiplier expansion or contraction desirable or not? Yes,

More information

The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices

The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within

More information

Economics 104B. Solutions to Homework Assignment #4

Economics 104B. Solutions to Homework Assignment #4 Economics 104B Solutions to Homework Assignment #4 Required Assignment #4 Textbook Questions * denotes graded questions Chapter 13 (p. 334): Problems 6*, 8* 6*. a. The consumption function is C = 1 + 0.9(Y

More information

0 100 200 300 Real income (Y)

0 100 200 300 Real income (Y) Lecture 11-1 6.1 The open economy, the multiplier, and the IS curve Assume that the economy is either closed (no foreign trade) or open. Assume that the exchange rates are either fixed or flexible. Assume

More information

ECONOMICS 1 Problem Set 4 -- Suggested Answers

ECONOMICS 1 Problem Set 4 -- Suggested Answers Department of Economics Prof. Kenneth Train University of California, Berkeley Fall Semester 2011 I. Measurement of Price Changes. ECONOMICS 1 Problem Set 4 -- Suggested Answers In Merryland, there are

More information

Homework for Chapter 10

Homework for Chapter 10 DEREE COLLEGE DEPARTMENT OF ECONOMICS EC 1101 PRINCIPLES OF ECONOMICS II FALL SEMESTER 2002 M-W-F 13:00-13:50 Dr. Andreas Kontoleon Office hours: Contact: a.kontoleon@ucl.ac.uk Wednesdays 15:00-17:00 Homework

More information

Chapter 12: Aggregate Expenditure and Output in the Short Run

Chapter 12: Aggregate Expenditure and Output in the Short Run Chapter 12: Aggregate Expenditure and Output in the Short Run Yulei Luo SEF of HKU March 4, 2013 Learning Objectives 1 Understand how macroeconomic equilibrium is determined in the aggregate expenditure

More information

ECON 1010 Principles of Macroeconomics Solutions to Exam #3. Section A: Multiple Choice Questions. (40 points; 2 pts each)

ECON 1010 Principles of Macroeconomics Solutions to Exam #3. Section A: Multiple Choice Questions. (40 points; 2 pts each) ECON 1010 Principles of Macroeconomics Solutions to Exam #3 Section A: Multiple Choice Questions. (40 points; 2 pts each) 1. Domestic savings and foreign savings are: a. sources of funds for investment

More information

(1) A reduction in the lump sum tax (2) A rise in the marginal propensity to import (3) A decrease in the marginal propensity to consume

(1) A reduction in the lump sum tax (2) A rise in the marginal propensity to import (3) A decrease in the marginal propensity to consume S.7 Economics On 3 & 4-Sector Simple Keynesian Models S.7 Economics/3 & 4-sector Keynesian Models/p.1 95 #4 Which of the following would reduce the multiplier effect of investment on national income? (1)

More information

Introduction to Macroeconomics TOPIC 2: The Goods Market

Introduction to Macroeconomics TOPIC 2: The Goods Market TOPIC 2: The Goods Market Annaïg Morin CBS - Department of Economics August 2013 Goods market Road map: 1. Demand for goods 1.1. Components 1.1.1. Consumption 1.1.2. Investment 1.1.3. Government spending

More information

Introduction to Economics, ECON 100:11 & 13 Multiplier Model

Introduction to Economics, ECON 100:11 & 13 Multiplier Model Introduction to Economics, ECON 1:11 & 13 We will now rationalize the shape of the aggregate demand curve, based on the identity we have used previously, AE=C+I+G+(X-IM). We will in the process develop

More information

Miami Dade College ECO Principles of Macroeconomics Fall 2015 Practice Test #3

Miami Dade College ECO Principles of Macroeconomics Fall 2015 Practice Test #3 Miami Dade College ECO 2013.004 Principles of Macroeconomics Fall 2015 Practice Test #3 1. If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume? A) 0.4 B)

More information

FISCAL POLICY* Chapter. The Federal Budget. goods and services. goods and services, the value of transfer payments,

FISCAL POLICY* Chapter. The Federal Budget. goods and services. goods and services, the value of transfer payments, Chapter 15 FISCAL POLICY* The Federal Budget Topic: The Federal Budget 1) Which of the following is considered a purpose of the federal budget? I. To help the economy achieve full employment. II. To finance

More information

Practice Problems: Chapter 13 Fiscal Policy

Practice Problems: Chapter 13 Fiscal Policy Practice Problems: Chapter 13 Fiscal Policy 1. In the basic equation of national income accounting, the government directly controls and influences. A) G ; C and I B) T ; G and C C) C ; X and M D) I ;

More information

Chapter 8: Aggregate Expenditure and Equilibrium Output

Chapter 8: Aggregate Expenditure and Equilibrium Output Chapter 8: Aggregate Expenditure and Equilibrium Output Week 4 Presenter: February 15, 2013 Table of Contents 1 Aggregate Expenditure Model 2 John Maynard Keynes Figure 1: John Maynard Keynes (1883-1946)

More information

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* * Chapter Key Ideas. Outline

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* * Chapter Key Ideas. Outline C h a p t e r 13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* * Chapter Key Ideas Outline Economic Amplifier or Shock Absorber? A. A voice can be a whisper or fill Central Park, depending on the amplification.

More information

Keynesian Economics I. The Keynesian System (I): The Role of Aggregate Demand

Keynesian Economics I. The Keynesian System (I): The Role of Aggregate Demand Keynesian Economics I The Keynesian System (I): The Role of Aggregate Demand Labor Market Excess supply and excess demand are not equally strong forces in the labor market. The supply of workers is such

More information

Fun!!! With the MPC, MPS, and Multipliers

Fun!!! With the MPC, MPS, and Multipliers Fun!!! With the MPC, MPS, and Multipliers Disposable Income Net Income Paycheck After-tax income Marginal Propensity to Consume (MPC) The fraction of any change in disposable income that is consumed. MPC=

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Blanchard Cp.3 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose an open economy is in equilibrium. Given this information, we know

More information

2009 CHAPTER 11 Self Study Questions

2009 CHAPTER 11 Self Study Questions CHAPTER 11 Self Study Questions 1) The aggregate supply/aggregate demand model is used to help understand all of the following except A) inflation. B) business cycle fluctuations. C) the aggregate value

More information

Income and Expenditure

Income and Expenditure chapter 11 (27) Income and Expenditure Chapter Objectives Students will learn in this chapter: The nature of the multiplier and how initial changes in spending lead to further changes The meaning of the

More information

Miami Dade College ECO Principles of Macroeconomics - Spring 2016 Practice Test #3

Miami Dade College ECO Principles of Macroeconomics - Spring 2016 Practice Test #3 Miami Dade College ECO 2013.005 Principles of Macroeconomics - Spring 2016 Practice Test #3 1. If the stock market collapses, consumption will: A) not be affected. B) increase because stocks can now be

More information

28 EXPENDITURE MULTIPLIERS* * Answers to the Review Quizzes. (page 679 in Economics)

28 EXPENDITURE MULTIPLIERS* * Answers to the Review Quizzes. (page 679 in Economics) C h a p t e r 28 EXPENDITURE MULTIPLIERS* * Answers to the Review Quizzes Page 269 (page 675 in Economics) 1. Which components of aggregate expenditure are influenced by real GDP? Consumption expenditure

More information

Product Adjusts to Demand

Product Adjusts to Demand Product Adjusts to Demand In Keynesian macroeconomics, product adjusts to the aggregate demand for goods. If demand exceeds product, firms produce more, to meet the demand. If product exceeds demand, firms

More information

The Aggregate Expenditure Model

The Aggregate Expenditure Model The Aggregate Expenditure Model 25 25.1 Simple Aggregate Expenditure Model 25.2 Finding Equilibrium in the Aggregate Expenditure Model 25.3 Adding Investment, Government Purchases, and Net Exports 25.4

More information

8. Simultaneous Equilibrium in the Commodity and Money Markets

8. Simultaneous Equilibrium in the Commodity and Money Markets Lecture 8-1 8. Simultaneous Equilibrium in the Commodity and Money Markets We now combine the IS (commodity-market equilibrium) and LM (money-market equilibrium) schedules to establish a general equilibrium

More information

3 Macroeconomics SAMPLE QUESTIONS

3 Macroeconomics SAMPLE QUESTIONS Sample Multiple-Choice Questions Circle the letter of each correct answer. 1. Which of the following best describes aggregate supply? (A) The amount buyers plan to spend on output (B) A schedule showing

More information

Macroeconomics V: Aggregate Demand

Macroeconomics V: Aggregate Demand Macroeconomics V: Aggregate Demand Gavin Cameron Lady Margaret Hall Hilary Term 2004 introduction A very poor man may be said in some sense to have a demand for a coach and six; he might like to have it;

More information

Robert Ackerman Office Hours: 2:00-3:00PM T/Th Office: PA202 November 11, Economics 101

Robert Ackerman Office Hours: 2:00-3:00PM T/Th Office: PA202 November 11, Economics 101 Robert Ackerman rkackerm@live.unc.edu Office Hours: 2:00-3:00PM T/Th Office: PA202 November 11, 2013 Economics 101 Today Writing Assignment #2 Circular Flow Income Determination Fiscal Policy Economics

More information

Government Budget and Fiscal Policy CHAPTER

Government Budget and Fiscal Policy CHAPTER Government Budget and Fiscal Policy 11 CHAPTER The National Budget The national budget is the annual statement of the government s expenditures and tax revenues. Fiscal policy is the use of the federal

More information

FISCAL POLICY* Chapter. Key Concepts

FISCAL POLICY* Chapter. Key Concepts Chapter 11 FISCAL POLICY* Key Concepts The Federal Budget The federal budget is an annual statement of the government s expenditures and tax revenues. Using the federal budget to achieve macroeconomic

More information

MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*

MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* The Demand for Topic: Influences on Holding 1) The quantity of money that people choose to hold depends on which of the following? I. The price

More information

Homework 4 I Multiple Choices

Homework 4 I Multiple Choices Homework 4 I Multiple Choices 1) Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining A) the hyperinflations of the 1920s. B) why the Great

More information

ECON 3560/5040 Week 2. 1. What Determines the Total Production of Goods and Services

ECON 3560/5040 Week 2. 1. What Determines the Total Production of Goods and Services ECON 3560/5040 Week 2 NATIONAL INCOME 1. What Determines the Total Production of Goods and Services - Factors of production: the inputs used to produce goods and services (1) Capital (K) (2) Labor (L)

More information

EC and MIDTERM EXAM I. March 26, 2015

EC and MIDTERM EXAM I. March 26, 2015 EC102.03 and 102.05 Spring 2015 Instructions: MIDTERM EXAM I March 26, 2015 NAME: ID #: You have 80 minutes to complete the exam. There will be no extensions. The exam consists of 40 multiple choice questions.

More information

The Keynesian Cross. A Fixed Price Level. The Simplest Keynesian-Cross Model: Autonomous Consumption Only

The Keynesian Cross. A Fixed Price Level. The Simplest Keynesian-Cross Model: Autonomous Consumption Only The Keynesian Cross Some instructors like to develop a more detailed macroeconomic model than is presented in the textbook. This supplemental material provides a concise description of the Keynesian-cross

More information

CHAPTER 9 Building the Aggregate Expenditures Model

CHAPTER 9 Building the Aggregate Expenditures Model CHAPTER 9 Building the Aggregate Expenditures Model Topic Question numbers 1. Consumption function/apc/mpc 1-42 2. Saving function/aps/mps 43-56 3. Shifts in consumption and saving functions 57-72 4 Graphs/tables:

More information

Introduction to Economics

Introduction to Economics Introduction to Economics Topic 7 (Macroeconomics): An aggregate supply-aggregate demand model Coordinator lecturer: Levi Pérez (lperez@uniovi.es) University of Oviedo (Spain, ES EU) Overview 1. Aggregate

More information

7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Aggregate Supply

7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Aggregate Supply Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Aggregate Supply Topic: Aggregate Supply/Aggregate Demand Model 1) The aggregate supply/aggregate demand model is used to help understand all of the following

More information

TA Lecture on the Multiplier

TA Lecture on the Multiplier TA Lecture on the Multiplier 1 WHAT THE MULTIPLIER DOES Previously we have seen that equilibrium GNP is given by the equation: Y & = a 1 b + 1 1 b I This equation says that the autonomous level of consumption,

More information

Lesson 7 - The Aggregate Expenditure Model

Lesson 7 - The Aggregate Expenditure Model Lesson 7 - The Aggregate Expenditure Model Acknowledgement: Ed Sexton and Kerry Webb were the primary authors of the material contained in this lesson. Section : The Aggregate Expenditures Model Aggregate

More information

Pre-Test Chapter 10 ed17

Pre-Test Chapter 10 ed17 Pre-Test Chapter 10 ed17 Multiple Choice Questions 1. Refer to the above diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE 1 to AE 2 would: A. move the economy from

More information

M.A.PART - I ECONOMIC PAPER - I MACRO ECONOMICS

M.A.PART - I ECONOMIC PAPER - I MACRO ECONOMICS 1 M.A.PART - I ECONOMIC PAPER - I MACRO ECONOMICS 1. Basic Macroeconomics Income and spending The consumption function Savings and investment The Keynesian Multiplier The budget Balanced budget : theorem

More information

INTRODUCTION AGGREGATE DEMAND MACRO EQUILIBRIUM MACRO EQUILIBRIUM THE DESIRED ADJUSTMENT THE DESIRED ADJUSTMENT

INTRODUCTION AGGREGATE DEMAND MACRO EQUILIBRIUM MACRO EQUILIBRIUM THE DESIRED ADJUSTMENT THE DESIRED ADJUSTMENT Chapter 9 AGGREGATE DEMAND INTRODUCTION The Great Depression was a springboard for the Keynesian approach to economic policy. Keynes asked: What are the components of aggregate demand? What determines

More information

2.If actual investment is greater than planned investment, inventories increase more than planned. TRUE.

2.If actual investment is greater than planned investment, inventories increase more than planned. TRUE. Macro final exam study guide True/False questions - Solutions Case, Fair, Oster Chapter 8 Aggregate Expenditure and Equilibrium Output 1.Firms react to unplanned inventory investment by reducing output.

More information

Macroeconomics CHAPTER 10. Aggregate Supply and Aggregate Demand. Aggregate Supply. The Short-Run Aggregate Supply Curve

Macroeconomics CHAPTER 10. Aggregate Supply and Aggregate Demand. Aggregate Supply. The Short-Run Aggregate Supply Curve Aggregate Supply Macroeconomics CHAPTER 10 The aggregate supply curve shows the relationship aggregate output. Aggregate Supply and Aggregate Demand 3 What you will learn in this chapter: How the aggregate

More information

Lecture Notes: Chapter 9: The Income- Expenditure Framework: Consumption and the Multiplier

Lecture Notes: Chapter 9: The Income- Expenditure Framework: Consumption and the Multiplier Chapter 9 1 Final Lecture Notes: Chapter 9: The Income- Expenditure Framework: Consumption and the Multiplier J. Bradford DeLong Sticky Prices Business Cycles To understand business cycles, we need a model

More information

b. Given this information, describe the government budget balance for this economy.

b. Given this information, describe the government budget balance for this economy. Economics 102 Summer 2015 Answers to Homework #5 Due Wednesday, July 15, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

More information

ANSWERS TO END-OF-CHAPTER QUESTIONS

ANSWERS TO END-OF-CHAPTER QUESTIONS ANSWERS TO END-OF-CHAPTER QUESTIONS 9-1 Explain what relationships are shown by (a) the consumption schedule, (b) the saving schedule, (c) the investment-demand curve, and (d) the investment schedule.

More information

Introduction to Macroeconomics 1012 Final Exam Spring 2013 Instructor: Elsie Sawatzky

Introduction to Macroeconomics 1012 Final Exam Spring 2013 Instructor: Elsie Sawatzky Introduction to Macroeconomics 1012 Final Exam Spring 2013 Instructor: Elsie Sawatzky Name Time: 2 hours Marks: 80 Multiple choice questions 1 mark each and a choice of 2 out of 3 short answer question

More information

AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand

AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand Suppose that the economy is undergoing a recession because of a fall in aggregate demand. a. Using

More information

Business Conditions Analysis Prof. Yamin Ahmad ECON 736

Business Conditions Analysis Prof. Yamin Ahmad ECON 736 Business Conditions Analysis Prof. Yamin Ahmad ECON 736 Sample Final Exam Name Id # Instructions: There are two parts to this midterm. Part A consists of multiple choice questions. Please mark the answers

More information

1. Firms react to unplanned inventory investment by increasing output.

1. Firms react to unplanned inventory investment by increasing output. Macro Exam 2 Self Test -- T/F questions Dr. McGahagan Fill in your answer (T/F) in the blank in front of the question. If false, provide a brief explanation of why it is false, and state what is true.

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Survey of Macroeconomics, MBA 641 Fall 2006, Quiz 4 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The central bank for the United States

More information

The Keynesian Total Expenditures Model

The Keynesian Total Expenditures Model The Keynesian Total Expenditures Model LEARNING OBJECTIVES 1. Draw the consumption function and explain its appearance. 2. Discuss the factors that will shift the consumption function to a new position.

More information

Problem Set 7 FE312 Fall 2014 Rahman. Some Answers

Problem Set 7 FE312 Fall 2014 Rahman. Some Answers Some Answers 1) a. During the Depression, the Federal Reserve enacted policies that reduced the money supply. Sketch a graph and on it indicate what this would do to the aggregate demand and aggregate

More information

Keynes and IS-LM analysis. (Chapter 33 in Mankiw and Taylor)

Keynes and IS-LM analysis. (Chapter 33 in Mankiw and Taylor) Keynes and IS-LM analysis (Chapter 33 in Mankiw and Taylor) Short-run fluctuations The next four lectures will cover different aspects of macroeconomic policy, in particular, the role of fiscal and monetary

More information