Question 1

Consider a model with demand-determined output and a constant price level.A decrease in the net tax rate causes ________ in autonomous spending and a ________ in the simple multiplier.

Accepted Answer

The answer of Consider a model with demand-determined output and...

Question 2

Consider the following news headline: "Canadian exporters hurt by foreign recession." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Accepted Answer

If Canadian exporters are hurt by foreign recession, it means that their exports will decrease. This will result in a decrease in net exports (NX) and a leftward shift in the AE function. As a result, equilibrium national income will fall.

Question 3

A decrease in the value of the simple multiplier can be caused by

Accepted Answer

The simple multiplier formula is 1/(1-MPC), where MPC is the marginal propensity to consume. If there is an increase in the marginal propensity to save, then MPC decreases, which means the denominator of the formula increases, resulting in a decrease in the simple multiplier. Therefore, an increase in the marginal propensity to save causes a decrease in the value of the simple multiplier.

Question 4

Consider a model in which output is demand-determined.If the marginal propensity to spend out of national income is 0.4,then a $0.6 billion decrease in government purchases will cause equilibrium national income to ________ by approximately ________.

Accepted Answer

The formula for calculating the change in equilibrium national income due to a change in government purchases is:

∆Y = - (1/1-mpc) × ∆G

where ∆Y is the change in equilibrium national income, mpc is the marginal propensity to consume or spend out of national income, and ∆G is the change in government purchases.

Substituting the given values, we get:

∆Y = - (1/1-0.4) × (-0.6) billion
∆Y = - (1/0.6) × (-0.6) billion
∆Y = 1 billion

Therefore, equilibrium national income will decrease by $1.0 billion.

Question 5

Consider the following news headline: "China signs deal to buy more Canadian wheat." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Accepted Answer

By signing a deal to buy more Canadian wheat, China is increasing its demand for Canadian wheat. This will lead to an increase in exports of Canadian wheat, which in turn will increase Canada's aggregate demand. As a result, the AE function will shift up parallel to itself and the equilibrium national income will rise.

Question 6

Suppose aggregate output is demand determined.If the marginal propensity to spend is 0.5,and the MPC is 0.7,a $1 billion reduction in government purchases will cause equilibrium national income to ________ by ________.

Accepted Answer

With a demand-determined output, a $1 billion reduction in government purchases will cause a decrease in aggregate demand, which will ultimately result in a decrease in equilibrium national income. The MPC is relevant in determining the magnitude of this decrease. The MPC of 0.5 means that for every dollar decrease in income, consumption will decrease by 50 cents. The MPC of 0.7 means that for every dollar increase in income, consumption will increase by 70 cents. Therefore, the total decrease in equilibrium national income will be:

1 / (1 - MPC) = 1 / (1 - 0.7) = 3.33

So, a $1 billion reduction in government purchases will cause equilibrium national income to decrease by $2 billion (2 * 1 billion).

Question 7

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.The value of the simple multiplier in this model is

Accepted Answer

The simple multiplier is calculated using the formula 1/(1 - MPC + MPM), where MPC is the marginal propensity to consume and MPM is the marginal propensity to import. From the given equations, MPC = 0.43 and MPM = 0.06. Thus, the multiplier = 1/(1 - 0.43 + 0.06) = 1/(1 - 0.37) = 1/0.63 = 1.59.

Question 8

Consider the following news headline: "Government follows through on election promise-cuts income-tax rate by 5 percentage points." Assuming that aggregate output is demand-determined,what will be the effect of this action,all other things equal,on the AE function and on equilibrium national income?

Accepted Answer

The answer of Consider the following news headline: "Government follows...

Question 9

FIGURE 22-4 -Refer to Figure 22-4.The rotation from AE₀ to AE₁ implies that the marginal propensity to spend ________ and the value of the simple multiplier ________.

Accepted Answer

The rotation from AE0 to AE1 suggests an increase in the slope of the aggregate expenditure line, indicating that the marginal propensity to spend has increased. Consequently, the value of the simple multiplier also increases.

Question 10

In a simple macro model with government and demand-determined output,to raise equilibrium national income by $100 billion,G must be

Accepted Answer

To raise equilibrium national income by a certain amount, government spending must be increased by that amount divided by the simple multiplier. This is because the multiplier effect means that an initial change in spending will lead to a larger change in the national income.

Question 11

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy:
∙ marginal propensity to consume (mpc)= 0.75
∙ net tax rate (t)= 0.20
∙ no foreign trade
∙ fixed price level
∙ all expenditure and income figures are in billions of dollars.  FIGURE 22-2
-Refer to Figure 22-2.What is the value of the multiplier in this economy?

Accepted Answer

The answer of The diagram below shows desired aggregate expenditure...

Question 12

An increase in the value of the simple multiplier can be caused by

Accepted Answer

The simple multiplier is calculated as 1/(1-MPC) where MPC is the marginal propensity to consume. An increase in the simple multiplier implies a decrease in the denominator (1-MPC), which means an increase in MPC. The marginal propensity to save is (1-MPC) and therefore, an increase in MPC implies a decrease in the marginal propensity to save. This can be caused by a decrease in the net tax rate, which increases disposable income and hence increases consumption, leading to a higher MPC and a higher simple multiplier.

Question 13

In a macro model where the marginal propensity to consume out of disposable income is 0.8,the net tax rate is 0.25,and the marginal propensity to import is 0.12,the simple multiplier will be

Accepted Answer

The answer of In a macro model where the marginal...

Question 14

Suppose output is demand determined.An increase in the net tax rate ________ the marginal propensity to spend and thus ________ the simple multiplier.

Accepted Answer

An increase in the net tax rate lowers the disposable income of households, resulting in a decrease in consumption spending. Lower consumption spending implies a lower marginal propensity to spend, which, in turn, lowers the simple multiplier. Therefore, a higher net tax rate leads to a lower multiplier effect on output.

Question 15

Consider a simple macro model with government and foreign trade and where the price level is taken as given.The simple multiplier is equal to

Accepted Answer

In a simple macro model that includes government and foreign trade, where the price level is constant, the simple multiplier is given by 1/(1 - (MPC(1 - t) - m)). Here, MPC stands for the marginal propensity to consume, t represents the tax rate, and m is the marginal propensity to import. This formula accounts for the effects of taxes and imports on the multiplier.

Question 16

Consider a simple macro model with government and demand-determined output.If the government wants to reduce equilibrium national income by $20 billion,G must be

Accepted Answer

The answer of Consider a simple macro model with government...

Question 17

Consider the following news headline: "Canadians develop a greater taste for foreign vacations." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Accepted Answer

The answer of Consider the following news headline: "Canadians develop...

Question 18

Consider a simple macro model with demand-determined output.Suppose the level of exports decreases unexpectedly by $6 billion.If the government wants to restore the initial equilibrium level of output it could,all other things equal

Accepted Answer

Since the decrease in exports caused a reduction in output, the government can increase its purchases to create a demand for goods and services in the economy. An increase in government purchases of $6 billion will offset the decrease in exports and restore the initial equilibrium level of output. Option A is not the best choice because a larger increase in government purchases may lead to inflationary pressures in the economy. Option B is not feasible as it is difficult to achieve a sudden increase in net tax revenues. Option C is incorrect because the increase in net tax revenues will reduce consumer spending and aggregate demand in the economy, which will further decrease output. Option E is incorrect because a decrease in government purchases will lead to a further decrease in output, exacerbating the economic downturn.

Question 19

Consider the following news headline: "Business community gloomy about the economy-investment plans axed." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Accepted Answer

The headline suggests that the business community is cutting back on investment plans due to a bleak economic outlook. This will lead to a decrease in investment spending and a decrease in aggregate demand. As a result, the AE function will shift down parallel to itself, indicating a lower level of equilibrium national income.

Question 20

Consider a macro model with a constant price level and demand-determined output.A rise in the net tax rate ________ the simple multiplier and ________ equilibrium national income.

Accepted Answer

A rise in the net tax rate lowers the disposable income of households, which in turn reduces their consumption expenditure. This reduction in consumption expenditure leads to a decrease in aggregate demand, which lowers the equilibrium level of output or national income. The simple multiplier, which shows the magnification effect of changes in autonomous expenditure (such as government spending or investment), is also lowered due to the decrease in consumption expenditure. Therefore, the correct answer is B, which states that a rise in the net tax rate lowers the simple multiplier and equilibrium national income.

Quiz 22: Adding Government and Trade to the Simple Macro Model

Consider a model with demand-determined output and a constant price level.A decrease in the net tax rate causes in autonomous spending and a in the simple multiplier.

Consider the following news headline: "Canadian exporters hurt by foreign recession." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

A decrease in the value of the simple multiplier can be caused by

Consider a model in which output is demand-determined.If the marginal propensity to spend out of national income is 0.4,then a $0.6 billion decrease in government purchases will cause equilibrium national income to by approximately .

Consider the following news headline: "China signs deal to buy more Canadian wheat." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Suppose aggregate output is demand determined.If the marginal propensity to spend is 0.5,and the MPC is 0.7,a $1 billion reduction in government purchases will cause equilibrium national income to by .

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.The value of the simple multiplier in this model is

Consider the following news headline: "Government follows through on election promise-cuts income-tax rate by 5 percentage points." Assuming that aggregate output is demand-determined,what will be the effect of this action,all other things equal,on the AE function and on equilibrium national income?

FIGURE 22-4 -Refer to Figure 22-4.The rotation from AE₀ to AE₁ implies that the marginal propensity to spend and the value of the simple multiplier .

In a simple macro model with government and demand-determined output,to raise equilibrium national income by $100 billion,G must be

An increase in the value of the simple multiplier can be caused by

In a macro model where the marginal propensity to consume out of disposable income is 0.8,the net tax rate is 0.25,and the marginal propensity to import is 0.12,the simple multiplier will be

Suppose output is demand determined.An increase in the net tax rate the marginal propensity to spend and thus the simple multiplier.

Consider a simple macro model with government and foreign trade and where the price level is taken as given.The simple multiplier is equal to

Consider a simple macro model with government and demand-determined output.If the government wants to reduce equilibrium national income by $20 billion,G must be

Consider the following news headline: "Canadians develop a greater taste for foreign vacations." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Consider a simple macro model with demand-determined output.Suppose the level of exports decreases unexpectedly by $6 billion.If the government wants to restore the initial equilibrium level of output it could,all other things equal

Consider the following news headline: "Business community gloomy about the economy-investment plans axed." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Consider a macro model with a constant price level and demand-determined output.A rise in the net tax rate the simple multiplier and equilibrium national income.

Quiz 22: Adding Government and Trade to the Simple Macro Model

Consider a model with demand-determined output and a constant price level.A decrease in the net tax rate causes ________ in autonomous spending and a ________ in the simple multiplier.

Consider the following news headline: "Canadian exporters hurt by foreign recession." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

A decrease in the value of the simple multiplier can be caused by

Consider a model in which output is demand-determined.If the marginal propensity to spend out of national income is 0.4,then a $0.6 billion decrease in government purchases will cause equilibrium national income to ________ by approximately ________.

Consider the following news headline: "China signs deal to buy more Canadian wheat." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Suppose aggregate output is demand determined.If the marginal propensity to spend is 0.5,and the MPC is 0.7,a $1 billion reduction in government purchases will cause equilibrium national income to ________ by ________.

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.The value of the simple multiplier in this model is

FIGURE 22-4 -Refer to Figure 22-4.The rotation from AE0 to AE1 implies that the marginal propensity to spend ________ and the value of the simple multiplier ________.

In a simple macro model with government and demand-determined output,to raise equilibrium national income by $100 billion,G must be

An increase in the value of the simple multiplier can be caused by

In a macro model where the marginal propensity to consume out of disposable income is 0.8,the net tax rate is 0.25,and the marginal propensity to import is 0.12,the simple multiplier will be

Suppose output is demand determined.An increase in the net tax rate ________ the marginal propensity to spend and thus ________ the simple multiplier.

Consider a simple macro model with government and foreign trade and where the price level is taken as given.The simple multiplier is equal to

Consider a simple macro model with government and demand-determined output.If the government wants to reduce equilibrium national income by $20 billion,G must be

Consider the following news headline: "Canadians develop a greater taste for foreign vacations." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Consider a simple macro model with demand-determined output.Suppose the level of exports decreases unexpectedly by $6 billion.If the government wants to restore the initial equilibrium level of output it could,all other things equal

Consider the following news headline: "Business community gloomy about the economy-investment plans axed." Assuming that aggregate output is demand-determined,what effect will this have,all other things equal,on the AE function and on equilibrium national income?

Consider a macro model with a constant price level and demand-determined output.A rise in the net tax rate ________ the simple multiplier and ________ equilibrium national income.

Consider a model with demand-determined output and a constant price level.A decrease in the net tax rate causes in autonomous spending and a in the simple multiplier.

Consider a model in which output is demand-determined.If the marginal propensity to spend out of national income is 0.4,then a $0.6 billion decrease in government purchases will cause equilibrium national income to by approximately .

Suppose aggregate output is demand determined.If the marginal propensity to spend is 0.5,and the MPC is 0.7,a $1 billion reduction in government purchases will cause equilibrium national income to by .

FIGURE 22-4 -Refer to Figure 22-4.The rotation from AE₀ to AE₁ implies that the marginal propensity to spend and the value of the simple multiplier .

Suppose output is demand determined.An increase in the net tax rate the marginal propensity to spend and thus the simple multiplier.

Consider a macro model with a constant price level and demand-determined output.A rise in the net tax rate the simple multiplier and equilibrium national income.