Question 1

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 2

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

To reduce equilibrium national income by $20 billion, government spending (G) must be lowered by $20 billion divided by the simple multiplier, as the multiplier effect amplifies the initial change in spending.

Question 3

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 implies an increase in autonomous expenditure (AES) and a decrease in leakages (represented by the shift from S1U1B10 to S1U1B11). This leads to an increase in the value of the simple multiplier, as the increase in AES will lead to a proportionally larger increase in equilibrium output. Additionally, since the marginal propensity to spend is equal to the slope of the consumption function, an increase in AES will also lead to an increase in the marginal propensity to spend.

Question 4

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

Accepted Answer

The value of the simple multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Therefore, an increase in the value of the simple multiplier can be caused by a decrease in the net tax rate, which leads to an increase in disposable income and consumption, thereby increasing the MPC.

Question 5

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 6

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 answer of Consider a model in which output is...

Question 7

Consider a simple macro model with demand-determined output and the following specific parameter values: 
	a) Marginal propensity to consume out of disposable income = 0.6 
	b) Marginal propensity to consume out of national income = 0.48
	c) Marginal propensity to import = 0.23 
The simple multiplier without government and foreign trade in this economy is ________ and the simple multiplier with government and foreign trade in this economy is ________.

Accepted Answer

The simple multiplier without government and foreign trade is given by:
1/(1-MPC) = 1/(1-0.48) = 1/0.52 = 1.92

The simple multiplier with government and foreign trade is given by:
1/(1-MPC+MPM) = 1/(1-0.48+0.23) = 1/0.75 = 1.33

Therefore, the answer is C: 2.5 for the simple multiplier without government and foreign trade and 1.33 for the simple multiplier with government and foreign trade.

Question 8

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

An increase in the net tax rate would decrease disposable income and therefore decrease consumption spending, which is a component of aggregate demand. This decrease in aggregate demand would lead to a lower equilibrium national income. The simple multiplier would also be lowered, as the decrease in autonomous consumption would lead to a smaller increase in equilibrium national income for a given increase in autonomous spending.

Question 9

A decrease 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. As the denominator increases (due to an increase in MPS, or marginal propensity to save), the value of the multiplier decreases, leading to a smaller change in output for a given change in autonomous spending. Therefore, an increase in the marginal propensity to save (option D) will cause a decrease in the value of the simple multiplier. The other options are not directly related to the value of the multiplier.

Question 10

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 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

In a simple 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 simple multiplier is calculated using the formula 1/(1 - MPC(1 - tax rate) + MPM), where MPC is the marginal propensity to consume, MPM is the marginal propensity to import, and the tax rate is the net tax rate. Plugging in the values given: 1/(1 - 0.8(1 - 0.25) + 0.12) = 1/(1 - 0.8*0.75 + 0.12) = 1/(1 - 0.6 + 0.12) = 1/0.52 = 1.923.

Question 13

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 14

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 15

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 16

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

The news headline indicates an increase in exports, which will increase net exports and thus increase aggregate demand. This will cause the AE function to shift up parallel to itself, and equilibrium national income will rise.

Question 17

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

Since Canadian exporters are hurt by foreign recession, their exports will reduce. This will lead to a reduction in the aggregate expenditure in the economy. As a result, the AE function will shift downwards parallel to itself. This shift will lead to a decrease in the equilibrium national income.

Question 18

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

When the business community is gloomy about the economy and investment plans are axed, it implies that businesses are cutting back on their investment spending. This will shift the aggregate expenditure (AE) function down parallel to itself, as investment is a component of AE. As a result, the equilibrium national income will fall as well since it is determined by the intersection of the AE function and the 45-degree line.

Question 19

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 20

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.

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

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

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 .

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

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

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.

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

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.

In a simple 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

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

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?

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?

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?

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

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

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

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 ________.

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

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

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.

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

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.

In a simple 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

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

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?

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?

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 .

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

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.

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 .