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Exam 30: The Aggregate Expenditures Model

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Question 41

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Answer the question on the basis of the following information for a private closed economy: $\begin{array}{l}\begin{array} { c c } \underline{\text { Gross Domestic Product } }& \underline{\text { Consumption } }\\\$100& \$ 100 \\200 & 160 \\300 & 220 \\400 & 280 \\500 & 340 \\600 & 440\end{array}\\\begin{array} { c c c } \underline{\text { Expected Rate of Return }} & \underline{\text { Amount of Investment }} \\15 \% & \$ 0 \\12 & 40 \\9 & 80 \\6 & 120 \\3 & 160 \\0 & 200\end{array}\end{array}$ Refer to the information.The multiplier in this economy is:

A) 4.
B) 5.
C) 2.5.
D) 3.5.

E) B) and D)
F) C) and D)

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Question 42

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Other things equal,an increase in an economy's exports will:

A) lower the marginal propensity to import.
B) have no effect on domestic GDP because imports will change by an offsetting amount.
C) decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP.
D) increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

E) C) and D)
F) B) and D)

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Question 43

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(Advanced analysis) Answer the question on the basis of the following data for a private closed economy.The letters Y,C,S,and I are used to represent real GDP,consumption,saving,and investment respectively. $\begin{array}{ccc}\underline{\text { GDP }(Y) } & \underline{\text { Consumption (C) }} & \underline{\text { Investment (I) }} \\\$ \$ 0 & \$ 60 & \$ 30 \\100 & 120 & 40 \\200 & 180 & 50 \\300 & 240 & 60 \\400 & 300 & 70 \\500 & 360 & 80\end{array}$ Refer to the data.Equilibrium Y (= GDP) is:

Actual investment consists of planned investment plus unplanned changes in inventories (plus or minus).

(Advanced analysis) Answer the question on the basis of the following information for a private open economy.The letters Y,C,I_g,X,and M stand for GDP,consumption,gross investment,exports,and imports respectively.Figures are in billions of dollars. $\begin{array} { l } C = 40 + 0.8 Y \\t _ { g } = \overline { I _ { g } } = 40 \\X = \bar { X } = 20 \\M = \bar { M } = 30\end{array}$ Refer to the information.International trade in this case:

Exports are added to,and imports are subtracted from,aggregate expenditures in moving from a closed to an open economy.

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.The introduction of $80 billion of government spending would:

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 both government spending and taxes are zero,the equilibrium level of GDP is:

Planned investment plus unintended increases in inventories equals:

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy.The letters Y,C_a,I_g,X_n,G,and T stand for GDP,consumption,gross investment,net exports,government purchases,and net taxes respectively.Figures are in billions of dollars. $\begin{aligned}C _ { a } & = 25 + 0.75 ( Y - T ) \\I _ { g } & = I _ { g 0 } = 50 \\X _ { n } & = X _ { n 0 } = 10 \\G & = G _ { 0 } = 70 \\T & = T _ { 0 } = 30\end{aligned}$ Refer to the information.The equilibrium level of GDP for this economy is:

(Advanced analysis) Assume the saving schedule for a private closed economy is S = -20 + .2Y,where S is saving and Y is gross domestic product.The multiplier for this economy is:

The recessionary expenditure gap associated with the recession of 2007-2009 resulted from:

A lump-sum tax causes the after-tax consumption schedule:

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy.The letters Y,C_a,I_g,X_n,G,and T stand for GDP,consumption,gross investment,net exports,government purchases,and net taxes respectively.Figures are in billions of dollars. $\begin{aligned}C _ { a } & = 25 + 0.75 ( Y - T ) \\I _ { g } & = I _ { g 0 } = 50 \\X _ { n } & = X _ { n 0 } = 10 \\G & = G _ { 0 } = 70 \\T & = T _ { 0 } = 30\end{aligned}$ Refer to the information.The multiplier for this economy is:

In an aggregate expenditures diagram,a lump-sum tax (T) will:

(Advanced analysis) Answer the question on the basis of the following information for a private closed economy where C is consumption,Y is the gross domestic product,I_g is gross investment,and i is the interest rate: $\begin{aligned}C & = 40 + 0.8 Y \\l _ { g } & = 60 - 2 i \\i & = \bar { i } = 10\end{aligned}$ Refer to the information.Given that the interest rate is 10 (percent) ,the amount that businesses will want to invest will be:

In the aggregate expenditures model,an increase in government spending may:

If the MPC is .9,a $20 billion increase in a lump-sum tax will reduce GDP by $200 billion.

In moving from a private closed to a mixed closed economy in the aggregate expenditures model,taxes:

Other things equal,if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S.GDP,then: