Question 1

An economy saves 20 percent of any increase in income and there are no income taxes or imports. Then, an increase in investment of $2 billion leads to a short run increase in real GDP of

Accepted Answer

The economy has a marginal propensity to save (MPS) of 20%, which means the marginal propensity to consume (MPC) is 80% (1 - MPS). The multiplier effect is 1/(1-MPC) = 1/0.2 = 5. Therefore, an increase in investment of $2 billion leads to a $10 billion increase in real GDP (2 billion * 5 = 10 billion).

Question 2

-In the above table, there are no taxes and no imports or exports. The equilibrium level of expenditure for this economy is

Accepted Answer

The answer of 
-In the above table, there are no...

Question 3

-In the above table, equilibrium expenditure is

Accepted Answer

The answer of 
-In the above table, equilibrium expenditure is
...

Question 4

-In the above table, there are no taxes (so that real GDP equals disposable income) and no imports or exports. If real GDP decreases from $6,000 to $5,000, the marginal propensity to consume is

Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in income. If real GDP decreases from $6,000 to $5,000, the MPC would be positive, and typically it is a fraction less than 1. Given the options, 0.75 is a reasonable MPC value.

Question 5

Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will

Accepted Answer

The multiplier is calculated as 1/(1 - slope of AE curve) = 1/(1 - 0.75) = 4. Therefore, a $100 decrease in autonomous spending leads to a 4 times larger decrease in equilibrium expenditure, which is $400.

Question 6

In a simple economy with no income taxes or imports, prices are constant and the slope of the AE curve is 0.8. In order to increase real GDP by $500 billion, then

Accepted Answer

The multiplier is 1/(1-0.8) = 5. To increase GDP by $500 billion, investment needs to increase by $500 billion / 5 = $100 billion.

Question 7

Suppose that the slope of the AE curve is 0.67. Then a $100 increase in autonomous spending means equilibrium expenditure will

Accepted Answer

The multiplier effect is calculated as 1/(1-slope of AE curve). Here, it is 1/(1-0.67) = 3.03. Therefore, a $100 increase in autonomous spending will increase equilibrium expenditure by approximately $300 (100 * 3).

Question 8

Equilibrium real GDP is $500 billion, government expenditures are $80 billion, the MPC = 0.9, and there are no income taxes or imports. Suppose that government expenditures increase to $100 billion. If the price level is constant, after the increase in government expenditures, equilibrium real GDP will be

Accepted Answer

The change in government expenditures is $20 billion. With an MPC of 0.9, the spending multiplier is 1/(1-MPC) = 10. Therefore, the increase in GDP is 10 * $20 billion = $200 billion. Adding this to the initial GDP of $500 billion results in a new equilibrium GDP of $700 billion.

Question 9

Suppose that the slope of the AE curve is 0.75. Then a $100 increase in autonomous spending means equilibrium expenditure will

Accepted Answer

The slope of the AE (Aggregate Expenditure) curve is the marginal propensity to consume (MPC). If the slope is 0.75, it means that for every additional dollar of income, 75 cents will be spent. The multiplier is calculated as 1/(1-MPC), which in this case is 1/(1-0.75) = 4. Therefore, a $100 increase in autonomous spending leads to a $400 increase in equilibrium expenditure.

Question 10

-In the above table, there are no taxes and no imports or exports. The total level of expenditure in the economy when real GDP is $7,000 is

Accepted Answer

The answer of 
-In the above table, there are no...

Question 11

The government estimates that the multiplier is 2.0. In this case an increase in government expenditure of $500 billion increases real GDP by ________ and results in an increase in induced expenditure of ________.

Accepted Answer

The multiplier effect indicates that an initial increase in spending leads to a larger increase in real GDP. Here, with a multiplier of 2.0, a $500 billion increase in government expenditure would double, leading to a $1,000 billion increase in real GDP. The increase in induced expenditure is the initial $500 billion, as this is the amount that was initially injected into the economy to stimulate the larger GDP increase.

Question 12

-In the above table, there are no taxes and no imports or exports. If current real GDP is equal to $7,000, then firms will

Accepted Answer

If current real GDP is $7,000 and there are no taxes, imports, or exports, firms will decrease production if inventories are above their target level, indicating that $7,000 is above the equilibrium level of real GDP.

Question 13

-In the above table, suppose investment decreases by $0.1 trillion. The multiplier equals

Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. In this case, MPC is 0.9, so the multiplier is 1/(1-0.9) = 10.

Question 14

Equilibrium real GDP is $400 billion, the MPC = 0.9, and there are no income taxes or imports. Investment increases $40 billion. If the price level is constant, after the increase in investment, equilibrium real GDP will be

Accepted Answer

The multiplier effect is calculated as 1/(1-MPC) = 1/(1-0.9) = 10. The increase in investment is $40 billion, so the total increase in GDP is 40 billion * 10 = $400 billion. Adding this to the initial GDP of $400 billion results in a new equilibrium GDP of $800 billion.

Question 15

-In the above table, there are no taxes and no imports or exports. The change in unplanned inventories when real GDP is $7,000 is

Accepted Answer

The answer of 
-In the above table, there are no...

Question 16

Suppose that the slope of the AE curve is 0.67. Then a $100 decrease in autonomous spending means equilibrium expenditure will

Accepted Answer

The slope of the AE (Aggregate Expenditure) curve is the multiplier, which is 1/(1 - MPC) where MPC is the marginal propensity to consume. Given the slope is 0.67, the multiplier is 1/(1-0.67) = 3. A $100 decrease in autonomous spending will thus lead to a $300 decrease in equilibrium expenditure, as the multiplier effect amplifies the initial change.

Question 17

-The data in the above table indicate that the slope of the AE curve is

Accepted Answer

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-The data in the above table indicate...

Question 18

The government estimates that the multiplier is 2.0. If this estimate is accurate, then the slope of the AE curve is

Accepted Answer

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Question 19

-The data in the above table indicate that autonomous expenditure is

Accepted Answer

Autonomous expenditure is the sum of consumption and investment, which is $0.3 trillion + $3.0 trillion = $3.3 trillion.

Question 20

Suppose that the slope of the AE curve is 0.80. If prices remain constant and government expenditure increases by $10 billion, what will be the value of the change in real GDP?

Accepted Answer

The slope of the AE curve (0.80) represents the marginal propensity to consume (MPC). The multiplier is calculated as 1/(1-MPC), which in this case is 1/(1-0.80) = 5. Therefore, a $10 billion increase in government expenditure would lead to a $50 billion increase in real GDP, as the multiplier effect amplifies the initial increase in spending.

Quiz 11: Expenditure Multipliers

An economy saves 20 percent of any increase in income and there are no income taxes or imports. Then, an increase in investment of $2 billion leads to a short run increase in real GDP of

-In the above table, there are no taxes and no imports or exports. The equilibrium level of expenditure for this economy is

-In the above table, equilibrium expenditure is

-In the above table, there are no taxes (so that real GDP equals disposable income) and no imports or exports. If real GDP decreases from $6,000 to $5,000, the marginal propensity to consume is

Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will

In a simple economy with no income taxes or imports, prices are constant and the slope of the AE curve is 0.8. In order to increase real GDP by $500 billion, then

Suppose that the slope of the AE curve is 0.67. Then a $100 increase in autonomous spending means equilibrium expenditure will

Suppose that the slope of the AE curve is 0.75. Then a $100 increase in autonomous spending means equilibrium expenditure will

-In the above table, there are no taxes and no imports or exports. The total level of expenditure in the economy when real GDP is $7,000 is

The government estimates that the multiplier is 2.0. In this case an increase in government expenditure of $500 billion increases real GDP by and results in an increase in induced expenditure of .

-In the above table, there are no taxes and no imports or exports. If current real GDP is equal to $7,000, then firms will

-In the above table, suppose investment decreases by $0.1 trillion. The multiplier equals

Equilibrium real GDP is $400 billion, the MPC = 0.9, and there are no income taxes or imports. Investment increases $40 billion. If the price level is constant, after the increase in investment, equilibrium real GDP will be

-In the above table, there are no taxes and no imports or exports. The change in unplanned inventories when real GDP is $7,000 is

Suppose that the slope of the AE curve is 0.67. Then a $100 decrease in autonomous spending means equilibrium expenditure will

-The data in the above table indicate that the slope of the AE curve is

The government estimates that the multiplier is 2.0. If this estimate is accurate, then the slope of the AE curve is

-The data in the above table indicate that autonomous expenditure is

Suppose that the slope of the AE curve is 0.80. If prices remain constant and government expenditure increases by $10 billion, what will be the value of the change in real GDP?