Question 1

A change in autonomous aggregate expenditures will shift aggregate demand by an amount
Jequal to the change in autonomous aggregate expenditures times the multiplier.

Accepted Answer

This is the basic formula for calculating the impact of changes in autonomous spending on aggregate demand in Keynesian economics. The multiplier effect occurs because an initial increase in spending leads to a chain reaction of additional spending as income and output levels rise.

Question 2

What is the difference between the aggregate expenditures curve and the aggregate demand
Jcurve?

Accepted Answer

The answer of What is the difference between the aggregate...

Question 3

Distinguish between planned and unplanned investment, and explain their relationship to
Jthe aggregate expenditures model and to equilibrium real GDP.

Accepted Answer

The answer of Distinguish between planned and unplanned investment, and...

Question 4

A change in aggregate demand causes a change in income, which in turn induces a
Jchange in consumption.

Accepted Answer

A change in aggregate demand can lead to a change in income, which can affect consumption through the income effect. When income increases, consumers have more disposable income, allowing them to consume more, and vice versa. Therefore, a change in aggregate demand can lead to a change in consumption.

Question 5

What is the multiplier effect, that is, why does income change by a multiple of the initial
Jchange in autonomous aggregate expenditures?

Accepted Answer

The answer of What is the multiplier effect, that is,...

Question 6

If consumption increases by $75 billion when disposable personal income increases by
J$100, the marginal propensity to consume is 0.75.

Accepted Answer

The definition of marginal propensity to consume (MPC) is the change in consumption divided by the change in disposable personal income. So, MPC = $75 billion / J$100 = 0.75. Therefore, the statement is true.

Question 7

Personal saving is real GDP not spent on consumption.

Accepted Answer

The answer of Personal saving is real GDP not spent...

Question 8

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

Accepted Answer

The multiplier is calculated as the change in equilibrium real GDP divided by the initial change in autonomous investment. Therefore, in this case, the multiplier is 100 billion/40 billion, which simplifies to 2.5.

Question 9

An increase in the price level, all other things unchanged, shifts the aggregate expenditures
Jcurve upwards.

Accepted Answer

An increase in the price level, all other things unchanged, reduces the real value of money, leading to a decrease in expenditures, which shifts the aggregate expenditures downward, not upward.

Question 10

Aggregate expenditures that do not vary with real GDP are called autonomous aggregate
Jexpenditures.

Accepted Answer

Autonomous expenditures are not influenced by changes in real GDP and are independent of it.

Question 11

If C = $500 billion + .6Y, then, if Y = $1,000 billion, induced consumption will be equal to
J$1,100 billion.

Accepted Answer

Induced consumption is the part of consumption that changes with income, calculated as 0.6Y. For Y = $1,000 billion, induced consumption is 0.6 * $1,000 billion = $600 billion, not $1,100 billion.

Question 12

Aggregate expenditures that vary with real GDP are called induced aggregate expenditures.

Accepted Answer

Induced aggregate expenditures are those that vary with changes in real GDP, such as consumption spending, investment spending, and government spending.

Question 13

If consumption is $80 billion when income is $100, the most likely value for the marginal propensity to consume is 0.8.

Accepted Answer

The answer of If consumption is $80 billion when income...

Question 14

If C = $400 billion + 0.75(Y_d) and if real GDP is $1,000 billion, then for any positive tax Jrate, C =$1,150 billion.

Accepted Answer

The equation given for C is a consumption function that includes the variable Y_d, which represents disposable income after taxes. The statement about the positive tax rate implies that Y_d will decrease, leading to a decrease in consumption (C). Therefore, C will be less than $1,150 billion, making the statement false. The actual value of C would depend on the specific value of the tax rate.

Question 15

A decrease in the price level, all other things unchanged, shifts the aggregate expenditures
Jcurve upwards.

Accepted Answer

A decrease in the price level, all other things unchanged, leads to a decrease in the cost of production which in turn leads to an increase in output and prices. This causes an upward shift in the aggregate expenditures curve.

Question 16

The amount of consumption that takes place when real GDP equals zero is called induced
Jconsumption.

Accepted Answer

The amount of consumption that takes place when real GDP equals zero is called autonomous consumption, not induced consumption. Induced consumption refers to changes in consumption that are a result of changes in income or other economic factors.

Question 17

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

Accepted Answer

This is the definition of the multiplier effect in macroeconomics.

Question 18

In the aggregate expenditures model, if a $50 billion increase in investment leads to an increase in equilibrium real GDP of $250 billion at the initial price level, then the multiplier is 4.

Accepted Answer

The answer of In the aggregate expenditures model, if a...

Question 19

What is the marginal propensity to consume? Explain why the sum of marginal propensity
Jto consume and marginal propensity to save must equal 1.

Accepted Answer

The answer of What is the marginal propensity to consume?...

Quiz 13: Consumption and the Aggregate Expenditures Model

A change in autonomous aggregate expenditures will shift aggregate demand by an amount Jequal to the change in autonomous aggregate expenditures times the multiplier.

What is the difference between the aggregate expenditures curve and the aggregate demand Jcurve?

Distinguish between planned and unplanned investment, and explain their relationship to Jthe aggregate expenditures model and to equilibrium real GDP.

A change in aggregate demand causes a change in income, which in turn induces a Jchange in consumption.

What is the multiplier effect, that is, why does income change by a multiple of the initial Jchange in autonomous aggregate expenditures?

If consumption increases by $75 billion when disposable personal income increases by J$100, the marginal propensity to consume is 0.75.

Personal saving is real GDP not spent on consumption.

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

An increase in the price level, all other things unchanged, shifts the aggregate expenditures Jcurve upwards.

Aggregate expenditures that do not vary with real GDP are called autonomous aggregate Jexpenditures.

If C = $500 billion + .6Y, then, if Y = $1,000 billion, induced consumption will be equal to J$1,100 billion.

Aggregate expenditures that vary with real GDP are called induced aggregate expenditures.

If consumption is $80 billion when income is $100, the most likely value for the marginal propensity to consume is 0.8.

If C = $400 billion + 0.75(Yd) and if real GDP is $1,000 billion, then for any positive tax Jrate, C =$1,150 billion.

A decrease in the price level, all other things unchanged, shifts the aggregate expenditures Jcurve upwards.

The amount of consumption that takes place when real GDP equals zero is called induced Jconsumption.

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

In the aggregate expenditures model, if a $50 billion increase in investment leads to an increase in equilibrium real GDP of $250 billion at the initial price level, then the multiplier is 4.

What is the marginal propensity to consume? Explain why the sum of marginal propensity Jto consume and marginal propensity to save must equal 1.

If C = $400 billion + 0.75(Y_d) and if real GDP is $1,000 billion, then for any positive tax Jrate, C =$1,150 billion.