# The Simple Keynesian Theory. The Simple Keynesian Theory of Income Determination. The Simple Keynesian Theory. The Simple Keynesian Theory

Save this PDF as:

Size: px
Start display at page:

Download "The Simple Keynesian Theory. The Simple Keynesian Theory of Income Determination. The Simple Keynesian Theory. The Simple Keynesian Theory"

## Transcription

1 of Income Determination Some Basic Definitions Endogenous variables Output Consumer Spending To become endogenous variables Investment spending Net exports Interest rates Inflation 1 2 Some Basic Definitions (continued) Exogenous variables Policy instruments Money supply Government spending Tax rates 3 Some Basic Definitions (continued) Exogenous variables (continued) Demand shocks Unpredictable changes in» Consumer spending» Investment spending» Net exports Foreign economic activity Abrupt changes in technology Changes in regulations Wars Political crises 4 Some Basic Definitions (continued) Exogenous variables (continued) Supply shocks Large changes in oil prices Large changes in raw material prices» Agricultural» Industrial Parameters Determining Equilibrium Income By definition E = C + I + G + NX Now assume C, G and NX are always equal to planned Only I can differ from planned I = I(p) + I(u) Therefore E(p) = C + I(p) + G + NX 5 6 1

2 Figure 3-1 A Simple Hypothesis Regarding Consumption Behavior The Consumption Function Autonomous consumption Induced consumption marginal propensity to consume General linear form C = a + c ( Y - T )» Figure Figure 3-3 Consumption, Saving, and Disposable Income, The Savings Function Autonomous saving» Figure 3-3 Induced saving marginal propensity to save General linear form S = ( Y - T ) - C = ( Y - T ) - a - c ( Y - T ) = -a + (1 - c) ( Y - T) = -a + s ( Y - T ) 9 10 Figure 3-2 The Relation Between Induced Consumption, Induced Saving, and the Consumption Function Consumption & Savings (Figure 3-2) ( Y - T ) = C + S = a + c ( Y - T ) -a + s ( Y - T ) = ( c + s ) ( Y - T ) ( c + s ) = ( Y - T ) / ( Y - T ) = 1 so c + s = 1 ; c = 1 - s ; s = 1 - c

3 Figure 3-4 Autonomous Planned Spending and the Level of Total Planned Expenditure Equilibrium Equilibrium is a situation in which there is no pressure for change Total Planned Expenditures E(p) = C + I(p) + G + NX = a + c ( Y - T ) + I(p) + G + NX = a + cy - ct + I(p) + G + NX» Figure Equilibrium (continued) Autonomous Planned Spending A(p) = a - ct + I(p) + G + NX Total Planned Expenditures E(p) = A(p) + cy Equilibrium (continued) It is always true that Y = E Y = E(p) + I(u) where I(u) is unintended inventory investment Equilibrium exists only when Y = E(p) or I(u) = Figure 3-5 How Equilibrium Income is Determined Disequilibrium Dynamics (continued) Example» Figure 3-5 Does I(u) need to be reversed?

4 Equilibrium (continued) Autonomous planned spending equals induced saving in equilibrium Y = E(p) Y - cy = E(p) - cy ( 1 - c ) Y = A(p) remember s = 1 - c 19 Equilibrium (continued) Autonomous planned spending equals induced saving in equilibrium (continued) sy = A(p) Induced saving = autonomous spending Leakages = injections Y(e) = A(p) / s 20 The Multiplier Effect An example Calculating the Multiplier How much does income change? Y(1) = A(p)(1) / s Y(0) = A(p)(0) / s Change in Y = Change in A(p) / s The Multiplier (continued) k = Change in Y / Change in A(p) from Change in Y = Change in A(p) / s k = Change in A(p) / s / Change in A(p) k = 1 / s Relationship between leakages and the multiplier?» Figure Figure 3-6 The Change in Equilibrium Income Caused by a \$250 Billion Increase in Autonomous Planned Spending Fiscal Policy Fiscal Policy Definitions Changes in government spending Changes in autonomous tax revenues Changes in tax rates Now A(p) = a - ct + I(p) + G + NX

5 Government Spending Multiplier If Change in Y = Change in A(p) / s then Change in A(p) = Change in G Change in Y = Change in G / s k = Change in G / s / Change in G = 1 / s Government Spending Multiplier (con t) The Government Budget Deficit ( G - T ) = S - I - NX Change in G - Change in T = Change in S - Change in I - Change in NX but Changes in T, I, and NX = 0 therefore, Government Spending Multiplier (con t) The Government Budget Deficit (continued) The Tax Multiplier Autonomous Taxes Change in G = Change in S or Change in G = s ( change in Y) Change in A(p) = -c ( Change in T ) Autonomous Tax Multiplier k(t) = Change in Y / Change in T Remember Change in Y = Change in A(p) / s = [-c ( Change in T )] / s therefore k(t) = -c ( Change in T ) / s ( Change in T ) = -c / s 29 Balanced Budget Multiplier k(g) = 1 / s & k(t) = -c / s therefore, k(g) + k(t) = [ 1 / s ] + [ -c / s] = [ 1 - c ] / s = s / s = 1» Figure

6 Figure 3-7 Effect on Income of a \$250 Billion Increase in Government Spending Followed by a \$250 Billion Increase in Autonomous Tax Revenue 31 Effect of Income Taxes Autonomous taxes Induced taxes General linear form T = T(a) + ty Now YD = Y - T = Y - T(a) - ty = ( 1 - t ) Y - T(a) 32 Effect of Income Taxes (continued) Induced consumption C = a + c ( Y - T ) = a + c ( Y - T(a) - ty ) = a + c ( 1 - t ) Y Effect of Income Taxes (continued) Induced saving S = ( Y - T ) - C = Y - T(a) - ty -a - c ( 1 - t ) Y = -a + ( 1 - t ) Y - c ( 1 - t ) Y = -a + ( 1 - c ) ( 1 - t ) Y = -a + s ( 1 - t ) Y Effect of Income Taxes (continued) Induced income tax revenues T = T(a) + ty Effect of Income Taxes (continued) Total induced changes c ( 1 - t ) + s ( 1 - t ) + t ( c + s ) ( 1 - t ) + t (1 - t ) + t

7 Equilibrium Income with Income Taxes Y = E(p) Y - c ( 1 - t ) Y = E(p) - c ( 1 - t ) Y [ 1 - c ( 1 - t ) ] Y = A(p) so Y(e) = A(p) / [ 1 - c ( 1 - t ) ] = A(p) / [ s ( 1 - t ) + t ] Income Taxes and the Multiplier Change in Y = Change in A(p) / [ s ( 1 - t ) + t ] so k = 1 / [ s ( 1 - t ) + t ] or = 1/ marginal leakage rate Income Taxes, the Multiplier and Stabilization Policy Income taxes reduce the size of the multiplier A smaller multiplier means business cycles are dampened Income taxes are an automatic stabilizer. Y(e) changes when tax rates change Y(e) increases when tax rates are reduced Y(e) decreases when tax rates are increased Income Taxes and the Gov t Budget Deficit G - T = G - T(a) - ty Induced taxes makes the deficit cyclical actual deficit structural deficit The International Trade Multiplier Autonomous net exports exports autonomous imports Induced net exports imports General linear form The International Trade Multiplier The multiplier now becomes k = 1 / [ s ( 1- t ) + t + nx ] The multiplier becomes smaller the larger is the economy s elasticity to import. NX = NX(a) - nxy

8 Summarizing the Multiplier k = 1 / marginal leakage rate Types of leakages Saving only Saving and income tax Saving, income tax, and imports Marginal leakage rate s s ( 1 - t ) + t s ( 1 - t ) + t + nx Implications for business cycles Implications for stabilization policy 43 8

### = 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

### 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

### 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

### 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

### 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

### 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

### 1. Circular flow of income

1. Circular flow of income The circular flow of income Firms and households interact and exchange resources in an economy. Households supply firms with the factors of production, such as labour and capital,

### 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

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

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

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

### 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

### 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

### Macroeconomics Instructor Miller Fiscal Policy Practice Problems

Macroeconomics Instructor Miller Fiscal Policy Practice Problems 1. Fiscal policy refers to changes in A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives.

### Keynesian Cross or Multiplier Model The Real Side and Fiscal Policy

Keynesian Cross or Multiplier Model The Real Side and Fiscal Policy 1 Assumptions Ignore Aggregate Supply Assume prices or inflation fixed for business cycle analysis, the Business Cycle Assumption (1

### 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

### 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

### 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

### 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

### (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)

### 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)

### 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

### Solution to Unsolved Numericals in the Textbook

Solution to Unsolved Numericals in the Textbook National Income and Related Aggregates. Calculate Gross National Disposable Income from the following data: (i) National income 2,000 (ii) Net factor income

### 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

### Topic 1 : Saving and Investment

Topic 1 : Saving and Investment April 26, 2006 The key to thinking about how to relate these concepts together in the framework of the Keynesian neo-classical synthesis is to use a number of important

### 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

### 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.

### Lecture 10-1. The Twin Deficits

Lecture 10-1 The Twin Deficits The IS-LM model of the previous lectures endogenised the interest rate while assuming that the portion (NX 0 ) of net exports not dependent on income was exogenously fixed.

### S.Y.B.COM. (SEM-III) ECONOMICS

Fill in the Blanks. Module 1 S.Y.B.COM. (SEM-III) ECONOMICS 1. The continuous flow of money and goods and services between firms and households is called the Circular Flow. 2. Saving constitute a leakage

### 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

### SRAS. is less than Y P

KrugmanMacro_SM_Ch12.qxp 11/15/05 3:18 PM Page 141 Fiscal Policy 1. The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant

### * * * 8 NATIONAL INCOME. Unit 1 : National Income Analysis

8 NATIONAL INCOME Macro / Topic 8-1 / P. 1 Unit 1 : National Income Analysis I Concepts and Meaning ( Definition ) II Approaches and Formulae III Measurement of GNP IV Economic Analysis of GNP National

### 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

### Preparation course Msc Business & Econonomics

Preparation course Msc Business & Econonomics The simple Keynesian model Tom-Reiel Heggedal BI August 2014 TRH (BI) Keynes model August 2014 1 / 19 Assumptions Keynes model Outline for this lecture: Go

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

Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Inflation can be started by 1) A) an increase in aggregate supply or a decrease in aggregate

### 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.

### 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

### 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

### 13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000.

Name: Date: 1. In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget

### Introduction to Economics, ECON 100:11 & 13 Fiscal Policy

We have already briefly talked about Keynesian arguments for government intervention, where we found that Keynesian Economist believes that because prices are sticky, it may take a sufficient lag in time

### INVESTMENT DECISIONS and PROFIT MAXIMIZATION

Lecture 6 Investment Decisions The Digital Economist Investment is the act of acquiring income-producing assets, known as physical capital, either as additions to existing assets or to replace assets that

### Figure 1: IS-LM Intersection

IS-LM Intersection In the short run, the economy moves to the intersection of the IS and LM curves (figure 1). Production adjusts to demand to put the economy on the IS curve. Bond prices and the interest

### Practice Exam. Name: Date: 1. When workers and employers correctly anticipate an increase in inflation caused by an increase in aggregate demand,

Practice Exam Name: Date: 1. When workers and employers correctly anticipate an increase in inflation caused by an increase in aggregate demand, workers will underestimate the real wage rate workers will

### 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

### 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

### International Macroeconommics

International Macroeconommics Chapter 7. The Open Economy IS-LM Model Department of Economics, UCDavis Outline 1 Building the IS-LM-FX Model 2 Monetary Policy Fiscal Policy Outline Building the IS-LM-FX

### Discussion #1: Chapter 4: The economy in the very long run: The Economics of Growth

Discussion #1: Chapter 4: The economy in the very long run: The Economics of Growth 1. Technological advances increase output in the short run but have no impact on long-run growth in output per capita,

Page 1 of 6 Economics 10: Problem Set 6 The mythical kingdom of Philhill is ruled by a philosopher-king who donates his time as mediator of all domestic disputes. Since there are no external enemies, there

### QUIZ 3 14.02 Principles of Macroeconomics May 19, 2005. I. True/False (30 points)

QUIZ 3 14.02 Principles of Macroeconomics May 19, 2005 I. True/False (30 points) 1. A decrease in government spending and a real depreciation is the right policy mix to improve the trade balance without

### 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)

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.

### 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.

### Econ 110: Introduction to Economic Theory. 21st Class 3/23/11. we don t assume to know why the government does what it does (black box) so we just set

Econ 0: Introduction to Economic Theory 2st Class 3/23/ let s continue with our simple model and add the third sector to our economy: the government so now AD = C + I + G we don t assume to know why the

### 1. a. Interest-bearing checking accounts make holding money more attractive. This increases the demand for money.

Macroeconomics ECON 2204 Prof. Murphy Problem Set 4 Answers Chapter 10 #1, 2, and 3 (on pages 308-309) 1. a. Interest-bearing checking accounts make holding money more attractive. This increases the demand

### changes in spending changes in income/output AE = Aggregate Expenditures = C + I + G + Xn = AD

small larger changes in spending changes in income/output AE = Aggregate Expenditures = C + I + G + Xn = AD The Multiplier Effect A small change in spending gives rise to a larger change in income/output

### 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:

### chapter: Solution Fiscal Policy

Fiscal Policy chapter: 28 13 ECONOMICS MACROECONOMICS 1. The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to

### 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

### CHAPTER 14 BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES

CHAPTER 14 BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES MULTIPLE-CHOICE QUESTIONS 1. Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium?

### 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

### Sample Questions. Name: Class: Date: Multiple Choice Identify the letter of the choice that best completes the statement or answers the question.

Name: Class: Date: Sample Questions Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. In Exhibit V-2, consumption spending is a. \$100 billion

### 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).

### The Keynesian Model of Short-Run Fluctuations

rinciples of Macroeconomics Dr. Gabriel X. Martinez Ave Maria University Spending and Output in the Short Run What causes fluctuations? What caused the 200 recession? Lower consumer spending Lower investment

### Study Questions for Chapter 9 (Answer Sheet)

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 Study

### Economics 3422 Sample Final Examination

Economics 3422 Sample Final Examination Instructions: Put your name and PeopleSoft ID on the blue book provided. Put all your answers in the blue book provided. Turn both question sheet and blue book in

### 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)

### Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #1

Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #1 1. Variables that a model tries to explain are called: A) endogenous. B) exogenous. C) market clearing. D) fixed. 2. A measure

### Econ 102 Section 1 Homework #5 Due July 7, Tuesday in class

Econ 102 Section 1 Homework #5 Due July 7, Tuesday in class Multiple Choice Questions (1-10: 10x1=10 points; 11-55: 45 x 2=90 points) 1.The principal amount of a bond is the amount: A) originally lent.

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

Macro Exam 2 Self Test -- ANSWERS Dr. McGahagan WARNING -- Be sure to take the self-test before peeking at the answers. Chapter 8 -- Aggregate Expenditure and Equilibrium Output _FALSE 1. Firms react to

### 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.

### Week 8 Tutorial Questions Solutions (Ch5)

Chapter 5: Q1: Macroeconomics P.177 Numerical Problems #1 Q2: Macroeconomics P.177 Numerical Problems #3 Q3: Macroeconomics P.178 Numerical Problems #5 Q4: Macroeconomics P.179 Analytical Problems #5 Q1:

### Chapter 3 A Classical Economic Model

Chapter 3 A Classical Economic Model what determines the economy s total output/income how the prices of the factors of production are determined how total income is distributed what determines the demand

### Introduction to Macroeconomics TOPIC 5: The IS-LM Model in an Open Economy

TOPIC 5: The IS-LM Model in an Open Economy Annaïg Morin CBS - Department of Economics August 2013 The IS-LM Model in an Open Economy Road map: Two concepts to better understand openness The goods market

### Aggregate Demand & Aggregate Supply

24 Chapter 10 Demand & Supply 10 Demand & Supply A. Basic concepts AS-AD model demand AD = C + I + G + NX supply Long-run aggregate supply (LAS) Short-run aggregate supply (SAS) Equilibrium output & price

### Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.

Exam 1 Review 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high

### 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

### Agenda. Saving and Investment in the Open Economy, Part 2. Globalization and the U.S. economy. Globalization and the U.S. economy

Agenda Globalization and the U.S. Economy Saving and Investment in the Open Economy, Part 2 Saving and Investment in Large Open Economies (LOE) The U.S. Current Account Deficit Fiscal Policy and the Current

### 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

### 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

### Answer: C Learning Objective: Money supply Level of Learning: Knowledge Type: Word Problem Source: Unique

1.The aggregate demand curve shows the relationship between inflation and: A) the nominal interest rate. D) the exchange rate. B) the real interest rate. E) short-run equilibrium output. C) the unemployment

### ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100)

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He Homework 1 Suggested Answer (Total points: 100) Understanding the growth rate and how to measure it Problem no. 1 on page 35. (10 points)

### Econ 336 - Spring 2007 Homework 5

Econ 336 - Spring 2007 Homework 5 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The real exchange rate, q, is defined as A) E times P B)

### Helpsheet. Giblin Eunson Library CRAMER S RULE. library.unimelb.edu.au/libraries/bee. Use this sheet to help you:

Helpsheet Giblin Eunson Library CRAER S RULE Use this sheet to help you: Use an alternative method to solve a set of linear simultaneous equations by matrix methods Author: Carter, D. Design and layout:

### GDP: The market value of final goods and services, newly produced WITHIN a nation during a fixed period.

GDP: The market value of final goods and services, newly produced WITHIN a nation during a fixed period. Value added: Value of output (market value) purchased inputs (e.g. intermediate goods) GDP is a

### COVENANT UNIVERSITY NIGERIA TUTORIAL KIT OMEGA SEMESTER PROGRAMME: ECONOMICS

COVENANT UNIVERSITY NIGERIA TUTORIAL KIT OMEGA SEMESTER PROGRAMME: ECONOMICS COURSE: ECN 121 DISCLAIMER The contents of this document are intended for practice and leaning purposes at the undergraduate

### 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.

### Chapter 10 Fiscal Policy Macroeconomics In Context (Goodwin, et al.)

Chapter 10 Fiscal Policy Macroeconomics In Context (Goodwin, et al.) Chapter Overview This chapter introduces you to a formal analysis of fiscal policy, and puts it in context with real-world data and

### 3. Define the multiplier. How is it related to real GDP and the initial change in spending? How can the multiplier have a negative effect?

Extra Review Questions and Answers for Chapter 10 B. Answers to Short -Answer, Essays, and Problems 1. Whenever there is a shift in the investment schedule and/or the consumption-saving schedules, there

### b) What happens to the level of output and the price level in the short run and in the long run?

1) Suppose the Fed reduces the money supply by 5 percent. a) What happens to the aggregate demand curve? If the Fed reduces the money supply, the aggregate demand curve shifts down. This result is based

### 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

### Chapter 9 Aggregate Demand and Economic Fluctuations Macroeconomics In Context (Goodwin, et al.)

Chapter 9 Aggregate Demand and Economic Fluctuations Macroeconomics In Context (Goodwin, et al.) Chapter Overview This chapter first introduces the analysis of business cycles, and introduces you to the

### Notes 10: An Equation Based Model of the Macroeconomy

Notes 10: An Equation Based Model of the Macroeconomy In this note, I am going to provide a simple mathematical framework for 8 of the 9 major curves in our class (excluding only the labor supply curve).

### 2. Simple but doesn t deal with stagflation simultaneous presence of inflation and unemployment.

Keynesian Model 1. The Keynesian policy prescription: if there is unemployment, run a deficit on the government account (negative govt savings). If there is inflation, run a surplus. 2. Simple but doesn

### Econ 202 Final Exam. Table 3-1 Labor Hours Needed to Make 1 Pound of: Meat Potatoes Farmer 8 2 Rancher 4 5

Econ 202 Final Exam 1. If inflation expectations rise, the short-run Phillips curve shifts a. right, so that at any inflation rate unemployment is higher. b. left, so that at any inflation rate unemployment

### Pre-Test Chapter 11 ed17

Pre-Test Chapter 11 ed17 Multiple Choice Questions 1. Built-in stability means that: A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby

### D) REVISED COBSE SYLLABUS IN ECONOMICS FOR STD XII

1 D) REVISED COBSE SYLLABUS IN ECONOMICS FOR STD XII UNIT-1- INTRODUCTION AND CONSUMER BEHAVIOUR INTRODUCTION 1. MEANING OF ECONOMICS 2. MEANING OF MICRO AND MACRO ECONOMICS 3. PROBLEM OF SCARCITY AND

### BUSINESS ECONOMICS CEC2 532-751 & 761

BUSINESS ECONOMICS CEC2 532-751 & 761 PRACTICE MACROECONOMICS MULTIPLE CHOICE QUESTIONS Warning: These questions have been posted to give you an opportunity to practice with the multiple choice format

### 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

### Economics 152 Solution to Sample Midterm 1

Economics 152 Solution to Sample Midterm 1 N. Das PART 1 (81 POINTS):Answer the following 27 multiple choice questions on the scan sheet. Each question is worth 3 points). 1. Gross domestic product (GDP)

### FISCAL POLICY* Chapter. Key Concepts

Chapter 15 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

### Monetary and Fiscal Policy Chapters 10, 13, and 14

Monetary and Fiscal Policy Chapters 10, 13, and 14! Stabilizing the Economy Controlling unemployment and inflation ((Dual Mandated)! Demand Side Policies Keynesian economics (John Maynard Keynes) Controlled