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Exam 30: The Aggregate Expenditures Model

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Question 81

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(Advanced analysis) Answer the question on the basis of the following consumption and investment data for a private closed economy.Figures are in billions of dollars. C = 60 + .6Y I = I₀ = 30 Refer to the data.In equilibrium,the level of saving will be:

A) 30.
B) 26.
C) 25.
D) 60.

E) B) and C)
F) All of the above

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Question 82

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If the marginal propensity to consume is .9 in a private closed economy,a $20 billion decline in investment spending will decrease:

A) GDP by $20 billion.
B) GDP by $100 billion.
C) saving by $20.
D) consumption by $200 billion.

E) B) and C)
F) A) and B)

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Question 83

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An upward shift of the aggregate expenditures schedule might be caused by:

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

In an effort to stop the U.S.recession of 2007-2009,the federal government:

Investment and saving are,respectively:

The following information is for a closed economy: $\begin{array}{c}\begin{array}{c}\underline{\text { GDP }} \\\$ 100 \\200 \\300 \\400 \\500 \\600 \\700\end{array}\begin{array}{c}\underline{\text { C }}\\ \$ 100 \\160 \\220 \\280 \\340 \\400 \\460 \end{array}\begin{array}{c}\underline{\text { S}} \\\$ 0 \\40 \\80 \\120 \\160 \\200 \\240 \end{array}\begin{array}{c}I_{g} \\\hline \$ 80 \\80 \\80 \\80 \\80 \\80 \\80 \end{array}\end{array}$ Refer to the information.If government spends $80 billion at each level of GDP,and imposes a lump-sum tax of $100:

Answer the question on the basis of the following table: The tax in the economy is a:

Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is .75.The federal government now finds that it must increase spending on military goods by $21 billion in response to deterioration in the international political situation.To sustain full-employment-noninflationary GDP,government must:

Answer the question below on the basis of the following information for a private closed economy: $\begin{array}{l}\begin{array} { c c } \underline{\text { Gross Domestic Product }} &\underline{ \text { Consumption }} \\\$100& \$ 120 \\200 & 180 \\300 & 240 \\400 & 300 \\500 & 360\end{array}\\\begin{array} { c c } \underline{\text { Expected Rate of Return }} &\underline{ \text { Amount of Investment }} \\ 25 \% & \$ 0 \\20 & 20 \\15 & 40 \\10 & 60 \\5 & 80\end{array}\end{array}$ Refer to the information.If the real interest rate is 20 percent,the equilibrium GDP will be:

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

Which of the following would reduce GDP by the greatest amount?

(Advanced analysis) Answer the question on the basis of the following information for a private closed economy. $\begin{array} { l } S = - 20 + 0.4 Y \\I _ { g } = 25 - 3 i\end{array}$ where S is saving,I_g is gross investment,i is the real interest rate,and Y is GDP. Refer to the information.If the real interest rate is 5 (percent) ,investment will be:

If government increases its purchases by $15 billion and the MPC is 2/3,then we would expect the equilibrium GDP to:

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:

If MPC = .5,a simultaneous increase in both taxes and government spending of $20 will:

In the United States from 1929 to 1933,real GDP _____________ and the unemployment rate ________________.

Which of the following statements is incorrect?

The following information is for a closed economy: $\begin{array}{c}\begin{array}{c}\underline{\text { GDP }} \\\$ 100 \\200 \\300 \\400 \\500 \\600 \\700\end{array}\begin{array}{c}\underline{\text { C }}\\ \$ 100 \\160 \\220 \\280 \\340 \\400 \\460 \end{array}\begin{array}{c}\underline{\text { S}} \\\$ 0 \\40 \\80 \\120 \\160 \\200 \\240 \end{array}\begin{array}{c}I_{g} \\\hline \$ 80 \\80 \\80 \\80 \\80 \\80 \\80 \end{array}\end{array}$ Refer to the information.If government now spends $80 billion at each level of GDP and taxes remain at zero,the equilibrium GDP:

Complete the following table and answer the question on the basis of the resulting data.All figures are in billions of dollars. $\begin{array}{cccccc}\begin{array}{c}\text { Domestic } \\\text { Output } \\\underline{\text { (GDP = DI) }}\end{array} & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, } \\\underline{\text { Closed Economy }}\end{array} & \begin{array}{c}\\\\\underline{\text { Exports }}\end{array} & \begin{array}{c}\\\\\underline{\text { Imports }}\end{array} & \begin{array}{c}\\\text { Net } \\\underline{\text { Exports }}\end{array} & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, } \\\underline{\text { Open Economy }}\end{array} \\ \$ 200 & \$ 230 & \$ 30 & \$ 20 & \$- & \$- \\250 & 270 & 30 & 20 & -&- \\300 & 310 & 30 & 20 & - & - \\350 & 350 & 30 & 20 & - & - \\400 & 390 & 30 & 20 & - & - \\450 & 430 & 30 & 20 & - & - \\500 & 470 & 30 & 20 & - & -\end{array}$ Refer to the table.For the open economy,the equilibrium GDP and the multiplier are: