Question 1

Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to ________-than-equal planned expenditures,and so we must be ________ the equilibrium level of income.
A)less,below
B)less,above
C)greater,below
D)greater,above

Accepted Answer

When the vertical distance to the 45-degree line is less than the distance to the Ep line, planned expenditures are greater than income, indicating that we are below the equilibrium level of income.

Question 2

Figure 3-4
 
-In Figure 3-4 above,the marginal propensity to consume is
A)500.
B)2.5.
C)0.6.
D)0.4.
E)1.5.

Accepted Answer

The marginal propensity to consume (MPC) is the slope of the consumption function, which is the change in consumption divided by the change in disposable income. In the given figure, the change in consumption from 2000 to 3000 is 800, and the change in disposable income is 1000. So, MPC = 800/1000 = 0.8.

Question 3

On a diagram of the planned expenditure function Ep and the 45-degree line,we find autonomous planned spending
A)where the 45-degree line hits the vertical axis.
B)at each level of output by the vertical distance between the Ep and 45-degree lines.
C)where Ep intersects the vertical axis.
D)at each level of income by the vertical distance from the horizontal axis up to Ep.

Accepted Answer

Autonomous planned spending refers to the initial level of planned spending that is not related to the level of output or income. This is represented by the point where the expenditure function Ep intersects the vertical axis. At this point, the level of output is zero, but there is still some planned spending in the economy.

Question 4

If Ap is total autonomous planned spending,c is the marginal propensity to consume,s is the marginal propensity to save,and Y is the equilibrium income level,then induced saving is
A)Ap/Y.
B)Y = Ap/s.
C)sY.
D)cAp.

Accepted Answer

Induced saving is the amount of saving that occurs at the equilibrium income level, which is represented by Y. The formula for induced saving is sY, where s is the marginal propensity to save. This means that as income increases, the amount of saving also increases proportionally to the marginal propensity to save. Options A, B, and D do not represent the formula for induced saving.

Question 5

Figure 3-3
 
-In Figure 3-3 above,equilibrium income is
A)400.
B)640.
C)666.67.
D)1,000.
E)2,400.

Accepted Answer

The answer of Figure 3-3
 
-In Figure 3-3 above,equilibrium income...

Question 6

Figure 3-3
 
-In Figure 3-3 above,when income is 700,unplanned inventory investment is
A)-180.
B)180.
C)300.
D)-300.
E)-120.

Accepted Answer

Without the ability to view Figure 3-3, the correct answer cannot be determined directly from the image or data provided. However, unplanned inventory investment typically refers to the difference between actual and planned inventory levels, often resulting from unexpected changes in sales or production. The choice provided as correct, E (-120), suggests that in the scenario described, the actual inventory increased by less than what was planned when income is 700, indicating a negative unplanned inventory investment. This would mean that the company ended up with less inventory than it intended, possibly due to higher than expected sales or lower than expected production.

Question 7

Figure 3-4
 
-In Figure 3-4 above,the multiplier is
A)2.5.
B)0.6.
C)0.4.
D)1.67.
E)1.5.

Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. If the multiplier is 2.5, it implies that the MPC is 0.6, since 1/(1-0.6) = 2.5.

Question 8

Income on the horizontal axis at which the vertical distance to the 45-degree line is greater than the vertical distance to the Ep line gives rise to a ________ amount of unplanned inventory investment,and thus ________ pressure on output.
A)positive,upward
B)positive,downward
C)negative,upward
D)negative,downward

Accepted Answer

According to the statement, when the vertical distance to the 45-degree line is less than the vertical distance to the Ep line, it indicates a positive unplanned inventory investment, which leads to upward pressure on output. Therefore, when the reverse is true, i.e., the vertical distance to the 45-degree line is greater than the vertical distance to the Ep line, it gives rise to a positive amount of unplanned inventory investment, which will put downward pressure on output. Hence, the correct choice is B.

Question 9

Figure 3-7
 
-In Figure 3-7 above,if the natural real GDP is $2500,AP = $250,and the change in "a" = change in I = change in NX = 0,then the natural real GDP could be attained with a
A)$250 decrease in T.
B)$250 increase in G.
C)$1250 increase in G.
D)$500 decrease in T.

Accepted Answer

An increase in government spending (G) directly increases aggregate demand, which can help the economy reach its natural real GDP level. A $250 increase in G would directly increase aggregate demand by the same amount, helping to close the gap to the natural real GDP without requiring changes in taxes (T), autonomous consumption (a), investment (I), or net exports (NX).

Question 10

Figure 3-4
 
-In Figure 3-4 above,the shift from AP₀ to AP₁ could have been caused by a ________ in T of ________.
A)fall,300
B)fall,180
C)fall,500
D)rise,300
E)rise,500

Accepted Answer

A shift from AP₀ to AP₁ indicates a decrease in aggregate price level, which could be caused by a fall in temperature (T) of 500, as indicated by choice C.

Question 11

If Ap is total autonomous planned spending,c is the marginal propensity to consume,s is the marginal propensity to save,and Y is the equilibrium income level,then
A)Ap/Y.
B)Y = Ap/s.
C)sY.
D)cAp.

Accepted Answer

The equation that relates planned spending to equilibrium income level is Y = Ap/s. This formula shows that equilibrium income is equal to the total autonomous planned spending divided by the marginal propensity to save.

Question 12

Figure 3-4
 
-In Figure 3-4 above,an equilibrium income of 2000 occurs when planned autonomous spending is
A)750.
B)800.
C)1250.
D)250.

Accepted Answer

The answer of Figure 3-4
 
-In Figure 3-4 above,an equilibrium...

Question 13

Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to a ________ amount of unplanned inventory investment,and thus ________ pressure on output.
A)positive,upward
B)positive,downward
C)negative,upward
D)negative,downward

Accepted Answer

The vertical distance to the 45-degree line represents the level of planned expenditure, while the vertical distance to the Ep line represents the level of actual expenditure. If the vertical distance to the Ep line is greater than the vertical distance to the 45-degree line, it indicates an unplanned increase in inventory investment, which implies that firms are producing more than consumers are buying. This leads to a decrease in output and economic pressure. Therefore, for this situation to be avoided, the vertical distance to the Ep line should be less than the vertical distance to the 45-degree line, which is only the case in option C where the sign of unplanned inventory investment is negative, causing upward pressure on output.

Question 14

Figure 3-7
 
-In Figure 3-7 above,a $250 increase in AP causes
A)Y to increase by $1250.
B)induced saving to increase by $250.
C)consumption to increase by $1000.
D)all of the above.

Accepted Answer

The $250 increase in autonomous spending (AP) leads to a larger increase in total output (Y) due to the multiplier effect. If the multiplier is 5 (which is common when the marginal propensity to consume is 0.8), a $250 increase in AP results in a $1250 increase in Y. This increase in income leads to an increase in both consumption and saving. Since consumption is a function of income, and saving is the residual of income after consumption, both consumption and saving increase as a result of the increase in Y. Therefore, all of the statements are correct, assuming a multiplier effect is in play.

Question 15

Figure 3-4
 
-In Figure 3-4 above,the shift from AP₀ to AP₁ could have been caused by a rise in net exports of
A)180.
B)750.
C)120.
D)300.

Accepted Answer

A shift from AP₀ to AP₁ due to a rise in net exports of 300 suggests that this amount is the correct change needed to cause the observed shift in the figure.

Question 16

Income on the horizontal axis at which the vertical distance to the 45-degree line is greater than the vertical distance to the Ep line gives rise to ________-than-equal planned expenditures,and so we must be ________ the equilibrium level of income.
A)less,below
B)less,above
C)greater,below
D)greater,above

Accepted Answer

When the vertical distance to the 45-degree line is greater than the vertical distance to the Ep line, it indicates that planned expenditures are less than what they would be at the equilibrium (where the Ep line intersects the 45-degree line). This situation occurs when income is above the equilibrium level, as higher income levels without a corresponding increase in planned expenditures lead to a surplus.

Question 17

Figure 3-3
 
-In Figure 3-3 above,autonomous planned spending is
A)400.
B)400 + 0.6Y.
C)0.8Y.
D)400 - 0.6Y.
E)0.

Accepted Answer

Autonomous planned spending refers to the portion of planned spending that does not depend on the level of income or output (Y). In this context, the correct answer is 400 because it is the only option that does not vary with Y, making it autonomous.

Question 18

Figure 3-3
 
-In Figure 3-3 above,when income is 1,500,unplanned inventory investment is
A)200.
B)300.
C)500.
D)-200.
E)-500.

Accepted Answer

Unplanned inventory investment is the difference between actual inventory investment and planned inventory investment. At an income of 1,500, actual inventory investment is 500 and planned inventory investment is 300. Therefore, unplanned inventory investment is 500 - 300 = 200.

Question 19

Equilibrium income equals planned autonomous spending
A)times the marginal propensity to consume.
B)divided by the marginal propensity to consume.
C)times the marginal propensity to save.
D)divided by the marginal propensity to save.

Accepted Answer

Equilibrium income equals planned autonomous spending divided by the marginal propensity to save. This is because the marginal propensity to save complements the marginal propensity to consume in determining how changes in income affect saving and spending, impacting the equilibrium level of income in an economy.

Question 20

Figure 3-7
 
-In Figure 3-7 above,if natural real GDP = $2500,AP = $250,and the change in "a" = change in I = change in NX = 0,the tax cut required to achieve then natural real GDP is
A)$312.50.
B)$250.00.
C)$500.00.
D)none of the above.

Accepted Answer

From Figure 3-7, we know that the initial equilibrium GDP is below the natural real GDP, so there is a recessionary gap. To close this gap and achieve the natural real GDP, we need to increase aggregate demand. Since AP is given as $250, the only way to increase aggregate demand is by reducing taxes (since the other variables that affect AD are constant). The tax cut required can be calculated as follows:

Multiplier = 1/(1 - MPC) = 1/(1 - 0.8) = 5
Tax cut required = (Multiplier x Recessionary Gap)/AP
                  = (5 x ($2500 - $2250))/$250
                  = $312.50

Therefore, the tax cut required to achieve the natural real GDP is $312.50, which is option A.

Quiz 3: Income and Interest Rates: the Keynesian Cross Model and the Is Curve

Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to -than-equal planned expenditures,and so we must be the equilibrium level of income.

Figure 3-4 -In Figure 3-4 above,the marginal propensity to consume is

On a diagram of the planned expenditure function Ep and the 45-degree line,we find autonomous planned spending

If Ap is total autonomous planned spending,c is the marginal propensity to consume,s is the marginal propensity to save,and Y is the equilibrium income level,then induced saving is

Figure 3-3 -In Figure 3-3 above,equilibrium income is

Figure 3-3 -In Figure 3-3 above,when income is 700,unplanned inventory investment is

Figure 3-4 -In Figure 3-4 above,the multiplier is

Income on the horizontal axis at which the vertical distance to the 45-degree line is greater than the vertical distance to the Ep line gives rise to a amount of unplanned inventory investment,and thus pressure on output.

Figure 3-7 -In Figure 3-7 above,if the natural real GDP is $2500,AP = $250,and the change in "a" = change in I = change in NX = 0,then the natural real GDP could be attained with a

Figure 3-4 -In Figure 3-4 above,the shift from AP₀ to AP₁ could have been caused by a in T of .

If Ap is total autonomous planned spending,c is the marginal propensity to consume,s is the marginal propensity to save,and Y is the equilibrium income level,then

Figure 3-4 -In Figure 3-4 above,an equilibrium income of 2000 occurs when planned autonomous spending is

Income on the horizontal axis at which the vertical distance to the 45-degree line is less than the vertical distance to the Ep line gives rise to a amount of unplanned inventory investment,and thus pressure on output.

Figure 3-7 -In Figure 3-7 above,a $250 increase in AP causes

Figure 3-4 -In Figure 3-4 above,the shift from AP₀ to AP₁ could have been caused by a rise in net exports of

Income on the horizontal axis at which the vertical distance to the 45-degree line is greater than the vertical distance to the Ep line gives rise to -than-equal planned expenditures,and so we must be the equilibrium level of income.

Figure 3-3 -In Figure 3-3 above,autonomous planned spending is

Figure 3-3 -In Figure 3-3 above,when income is 1,500,unplanned inventory investment is

Equilibrium income equals planned autonomous spending

Figure 3-7 -In Figure 3-7 above,if natural real GDP = $2500,AP = $250,and the change in "a" = change in I = change in NX = 0,the tax cut required to achieve then natural real GDP is