Question 1

Consider a simple macro model with a constant price level and demand-determined output.Suppose desired aggregate expenditures are less than the current level of national income.The vertical distance between the AE curve and the 45-degree line represents

Accepted Answer

The vertical distance between the AE (Aggregate Expenditure) curve and the 45-degree line at any level of income represents the amount by which output (or actual national income) exceeds desired expenditures. When desired aggregate expenditures are less than the current level of national income, firms experience unintended inventory accumulation because they produce more than what is being demanded.

Question 2

Consider the simplest macro model with a constant price level and demand-determined output.If national income is less than its equilibrium level,it is likely that firms' inventories are ________,and so national income tends to ________.

Accepted Answer

When national income is less than its equilibrium level, it indicates that demand is higher than what firms anticipated, leading to their inventories being depleted. As firms increase production to replenish their inventories, national income tends to rise.

Question 3

FIGURE 21-3 Refer to Figure 21-3.What does each point along the 45-degree line represent?

Accepted Answer

Each point along the 45-degree line represents the equilibrium condition where desired aggregate expenditure (which includes consumption, investment, government spending, and net exports) is equal to actual national income. This is because the 45-degree line shows all points where desired expenditure equals income, and at equilibrium, where there is no unplanned inventory accumulation, actual expenditure equals income.

Question 4

Consider the simplest macro model with a constant price level and demand-determined output.If desired aggregate expenditure is less than actual national income,then

Accepted Answer

When desired aggregate expenditure is less than actual national income, it indicates that not all output is being purchased, leading to an accumulation of inventories. This suggests that actual national income is above the equilibrium level, where aggregate expenditure would equal national income.

Question 5

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose actual national income is $900 billion and desired consumption plus desired investment is $890 billion.We can expect that

Accepted Answer

In this scenario, since actual national income ($900 billion) is greater than desired consumption plus investment ($890 billion), firms will end up with excess inventory. This signals that production exceeds demand, leading firms to decrease output to adjust, which in turn decreases actual national income towards equilibrium.

Question 6

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.The equilibrium level of national income ($billions)will be

Accepted Answer

The equilibrium level of national income is where output equals expenditure. In this case, the total expenditure (C + I + G) at $3600 billion is equal to the total output of $3600 billion, which is the equilibrium level of national income. Therefore, the answer is D.

Question 7

Consider a simple macro model with demand-determined output.At the equilibrium level of national income,

Accepted Answer

At equilibrium, desired aggregate expenditures, which represent consumer spending, investment, and government spending, will equal total output, which represents the total amount of goods and services produced in the economy. This is because any goods produced are ultimately purchased by someone, whether it be consumers, firms, or the government, resulting in a balance between supply and demand.

Question 8

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired investment ($billions)is

Accepted Answer

The answer of Consider the following information describing a closed...

Question 9

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.Suppose this economy is in equilibrium.There is then a significant decline in house prices across the country.The likely effect is

Accepted Answer

The decline in house prices will likely cause households to feel less wealthy and therefore reduce their consumption spending. This will shift the aggregate expenditures curve downward, resulting in a lower equilibrium national income. Autonomous consumption will fall below $300 billion since it is a component of aggregate expenditures. Therefore, the correct answer is E.

Question 10

Consider a simple macro model with a constant price level and demand-determined output.If national income is above its equilibrium level,it is likely that inventories are ________,and so national income tends to ________.

Accepted Answer

If national income is above its equilibrium level, it suggests that firms are producing more than what consumers are demanding. As a result, inventories will start accumulating as firms are unable to sell all the output they have produced. In order to reduce inventories back to the desired level, firms will cut back on production. This reduction in production will lead to a fall in national income towards its equilibrium level. Therefore, when national income is above the equilibrium level, it is likely that inventories are accumulating and national income tends to fall.

Question 11

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is

Accepted Answer

The given table provides information on the components of aggregate expenditure (AE) for different levels of real output (Y) in the economy. To find the aggregate expenditure function, we need to identify the relationship between AE and Y.

Option A: AE = $760 billion is incorrect as it does not take into account the relationship between AE and Y.

Option B: AE = $300 billion + 0.9Y is also incorrect as it assumes that consumption expenditure (C) is a fixed amount of $300 billion, whereas the table shows that C varies with changes in Y.

Option C: AE = $400 billion + 0.9Y is the correct expression for the aggregate expenditure function. The table shows that total planned expenditure (AE) equals $400 billion when there is no real output (Y=0). As real output increases by $1 billion, consumption expenditure (C) increases by $0.9 billion, which adds to AE. This relationship between AE and Y is captured by the equation AE = $400 billion + 0.9Y.

Option D and E are incorrect as they are not based on the information in the table.

Question 12

In a simple macro model with demand-determined output,the equilibrium level of national income is at an income

Accepted Answer

In a demand-determined model, equilibrium output occurs where aggregate expenditure (AE) intersects the 45-degree line (representing income). At this point, income equals expenditure, meaning that there is no unplanned accumulation of inventories and the macroeconomy is in a state of balance. Therefore, choice B (where the AE curve intersects the 45-degree line) is the correct answer. Choices A, C, D, and E do not accurately describe the equilibrium level of national income in a demand-determined model.

Question 13

Consider a simple macro model with a constant price level and demand-determined output.Suppose the level of actual national income is less than desired aggregate expenditure.In this case,

Accepted Answer

If actual national income is less than desired aggregate expenditure, it means there is excess demand for goods and services. This will lead to shortages of goods and reduction in inventories. To meet the demand, producers will have to increase their output, ultimately leading to an increase in national income. Therefore, option C is correct. Option A is not correct because inventories will not build up in case of excess demand. Option B is incorrect because actual expenditures cannot be greater than desired expenditures in this case. Option D is incorrect because the question does not provide information about the average propensity to consume and save. Option E is also incorrect because excess demand will lead to an increase in national income.

Question 14

FIGURE 21-3 Refer to Figure 21-3.Consider the simplest macro model with no government and no foreign trade,and the aggregate expenditure function AE = C + I.If there was zero autonomous expenditure and the marginal propensity to consume was equal to one,then the AE function would be

Accepted Answer

If the autonomous expenditure is zero and the marginal propensity to consume is one, then the aggregate expenditure (AE) function would be coincident with the 45-degree line. This is because AE = C + I, and with a marginal propensity to consume of one, consumption (C) will equal disposable income (Yd). Therefore, AE = Yd + I = Y + I. As Y equals the value of output (or income) in the economy, this means that AE is equal to total output (or income), which is represented by the 45-degree line.

Question 15

Consider the simplest macro model with demand-determined output.If desired aggregate expenditure is greater than actual national income,then

Accepted Answer

When desired aggregate expenditure is greater than actual national income, it indicates that consumers and businesses are willing to spend more than the economy is currently producing. This leads to a decrease in inventories as firms have not produced enough to meet demand, prompting them to increase production to replenish their stocks and meet the higher demand. This situation also means that the actual national income is below the equilibrium level, where aggregate expenditure equals output, necessitating an adjustment towards equilibrium through increased production.

Question 16

In a simple macro model with no government and no foreign trade,the equilibrium level of national income is the level of income at which

Accepted Answer

In a simple macro model with no government and no foreign trade, the equilibrium level of national income is achieved when aggregate desired expenditure equals actual national income. This occurs because any difference between the two would cause firms to either increase or decrease production, eventually resulting in the two being equal at equilibrium. Therefore, choice B is the correct answer.

Question 17

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose actual national income is $900 billion and desired consumption plus desired investment is $920 billion.We can expect that

Accepted Answer

In this scenario, since desired consumption plus investment ($920 billion) exceeds actual national income ($900 billion), firms will experience a decrease in inventories as demand outstrips supply. This will lead them to increase production (output) to meet the higher demand, thereby increasing actual national income towards the equilibrium level of $920 billion.

Question 18

In a simple macro model with the price level assumed to be constant,a change in firms' level of desired investment is predicted to influence equilibrium national income by

Accepted Answer

A change in firms' level of desired investment would directly affect aggregate expenditure, which includes investment. Therefore, this change would result in a shift in the aggregate expenditure function.

Question 19

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired consumption expenditure ($billions)will be

Accepted Answer

The answer of Consider the following information describing a closed...

Question 20

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired saving ($billions)is

Accepted Answer

The answer of Consider the following information describing a closed...

Quiz 21: The Simplest Short-Run Macro Model

Consider a simple macro model with a constant price level and demand-determined output.Suppose desired aggregate expenditures are less than the current level of national income.The vertical distance between the AE curve and the 45-degree line represents

Consider the simplest macro model with a constant price level and demand-determined output.If national income is less than its equilibrium level,it is likely that firms' inventories are ,and so national income tends to .

FIGURE 21-3 Refer to Figure 21-3.What does each point along the 45-degree line represent?

Consider the simplest macro model with a constant price level and demand-determined output.If desired aggregate expenditure is less than actual national income,then

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose actual national income is $900 billion and desired consumption plus desired investment is $890 billion.We can expect that

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.The equilibrium level of national income ($billions) will be

Consider a simple macro model with demand-determined output.At the equilibrium level of national income,

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired investment ($billions) is

Consider a simple macro model with a constant price level and demand-determined output.If national income is above its equilibrium level,it is likely that inventories are ,and so national income tends to .

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is

In a simple macro model with demand-determined output,the equilibrium level of national income is at an income

Consider a simple macro model with a constant price level and demand-determined output.Suppose the level of actual national income is less than desired aggregate expenditure.In this case,

FIGURE 21-3 Refer to Figure 21-3.Consider the simplest macro model with no government and no foreign trade,and the aggregate expenditure function AE = C + I.If there was zero autonomous expenditure and the marginal propensity to consume was equal to one,then the AE function would be

Consider the simplest macro model with demand-determined output.If desired aggregate expenditure is greater than actual national income,then

In a simple macro model with no government and no foreign trade,the equilibrium level of national income is the level of income at which

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose actual national income is $900 billion and desired consumption plus desired investment is $920 billion.We can expect that

In a simple macro model with the price level assumed to be constant,a change in firms' level of desired investment is predicted to influence equilibrium national income by

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired consumption expenditure ($billions) will be

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.At the equilibrium level of national income,desired saving ($billions) is