Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 31, Problem 1RQ
To determine
True or false.
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Figure: Aggregate Expenditures Curve II
Aggregate
expenditures
(per year)
$800
Reference: Ref 11-16
45-degree
line
AE
$2,000 Real GDP (per year)
(Figure: Aggregate Expenditures Curve II) The slope of the aggregate expenditures curve in the aggregate expenditures
model shown in this figure is:
O 45 degrees.
O 0.6.
O 0.5.
O 0.25.
In the Keynesian AE model, if the autonomous components of consumption,
investment, government spending, and net export spending total $100 billion,
and the MPC is 0.75, what will unplanned changes in inventory be when output is
$345 billion?
O-$4 billion
O $4 billion
O $5 billion
O -$5 billion
When output is higher than the intersection of the Keynesian AE and the 45-
degree line, which of the following can we expect to happen?
Osavings to be negative and consumption to fall
O inventories to rise and output to fall
O
inventories to fall and output to rise
consumers to expect higher incomes and consumption to rise
line shows the relationship between planned aggregate expenditure and output, and
line represents the condition that planned aggregate expenditure and output are equal.
In the Keynesian cross diagram, the
the
expenditure; 45-degree
O45-degree; consumption function
45 degree; expenditure
consumption function; 45-degree
Chapter 31 Solutions
Economics (Irwin Economics)
Ch. 31.2 - Prob. 1QQCh. 31.2 - Prob. 2QQCh. 31.2 - Prob. 3QQCh. 31.2 - Prob. 4QQCh. 31.7 - Prob. 1QQCh. 31.7 - Prob. 2QQCh. 31.7 - Prob. 3QQCh. 31.7 - Prob. 4QQCh. 31 - Prob. 1DQCh. 31 - Prob. 2DQ
Ch. 31 - Prob. 3DQCh. 31 - Prob. 4DQCh. 31 - Prob. 5DQCh. 31 - Prob. 6DQCh. 31 - Prob. 7DQCh. 31 - Prob. 8DQCh. 31 - Prob. 1RQCh. 31 - Prob. 2RQCh. 31 - Prob. 3RQCh. 31 - Prob. 4RQCh. 31 - Prob. 5RQCh. 31 - Prob. 6RQCh. 31 - Prob. 7RQCh. 31 - Prob. 8RQCh. 31 - Prob. 9RQCh. 31 - Prob. 1PCh. 31 - Prob. 2PCh. 31 - Prob. 3PCh. 31 - Prob. 4PCh. 31 - Prob. 5PCh. 31 - Prob. 6PCh. 31 - Prob. 7PCh. 31 - Prob. 8PCh. 31 - Prob. 9PCh. 31 - Prob. 10P
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- What is the initial change in consumption if an economy's MPC is 0.75 and there is a decrease in taxes of $1 billion? O $1.75 billion O $1 billion O $1.33 billion O $0.75 billionarrow_forward2. L Give Up! Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister? O The recessionary gap is equal to 400 billion yen. O The inflationary gap is equal to 400 billion yen. O The recessionary gap is equal to 625 billion yen. O The inflationary gap is equal to 625 billion yen.arrow_forwardIn a macro model where the marginal propensity to consume out of disposable income is 0.80, the net tax rate is 0.25, and the marginal propensity to import is 0.11, the simple multiplier will be O A. 3.448 O B. 2.041 OC. 0.490 O D. 1.961 O E. 1.408arrow_forward
- Problem 3. Analyze the general equilibrium effects of an increase in taxes. Illustrate your answer with a graph. Organize your answer by discussing (1) Does the change shift the IS curve and/or the LM curve? (2) How does the change affect the equilibrium interest rate and output? (3) Describe the effect of the change with your own words by focusing on the changes in the composition of GDP. Does the change shift the IS curve and/lor the LM curve? How does the change affect the equilibrium interest rate and output? Describe the effect of the change with your own words by focusing on the changes in the composition of GDP.arrow_forwardAssume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.66. What is the government spending multiplier? O 1.51 3.33 3.03 33.3arrow_forwardADVANCED ANALYSIS Assume that the consumption schedule for a private open economy is such that consumption C= 60 + 08Y Assume further that planned investment lo government spending G, and net exports X are independent of the level of real GDP nd constant at lg 40, G= 0, and Xp= 10. Recall also that, in equilibrium, the real output produced () is equal to aggregate expenditures: Y= C+lg+ G+ Xp Instructions: Round your answers to the nearest whole number. a. Calculate the equilibrium level of income or real GDP for this economy S 1050 b. What happens to equilibrium Yif lg changes to 20? 950 What does this outcome reveal about the size of the multiplier? Multiplier=arrow_forward
- If government spending rises by $100, mps = 0.2, then the GDP multiplier is O 5 O 4 O 1arrow_forwardIntended Spending (billions) $2,300 $2,100 $1,900 $1,700 $1,500 The marginal propensity to consume is 01 O 19/21. O 2/3. O 5/7. 45% $1,500 $1,800 $2,100 $2,400 $2,700 Gross Domestic Product (billions) impossible to tell from the graph. Consumption plus investment Consumptionarrow_forwardQUESTION 10 Assuming that the "equilibrium income" is $4,000 and the "full-employment" income is $8,000, which means a recessionary gap of $4,000, how much change in government expenditures is needed to fill the gap if MPC is 0.50? O $3,000 O $4,000 O $1,000 O $2,000arrow_forward
- QUESTION 14 Assuming that the "equilibrium income" is $4,000 and the "full-employment" income is $8,000, which means a recessionary gap of $4,000, how much tax cut is needed to fill the gap if MPC is 0.50? O $7,000 O $5,000 O $3,000 O $4,000arrow_forwardIf the multiplier is 4, what is the MPC? O 0.25 O 0.5 O 0.75 1arrow_forwardLAST WORD What is Say's law? How does it relate to the view held by classical economists that the economy generally will operate at a position on its production possibilities curve? Use production possibilities analysis to demonstrate Keynes's view on this matter.arrow_forward
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