Question 1

Policies that are used to affect planned aggregate expenditure,with the objective of eliminating output gaps,are called _________ policies.

Accepted Answer

Stabilization policies aim to stabilize the economy by adjusting planned aggregate expenditure to eliminate output gaps, which are the difference between actual output and potential output. This can be done through fiscal policy (changes in government spending and taxes) or monetary policy (changes in interest rates and money supply). Structural, cyclical, productivity, and autonomous policies do not specifically aim to eliminate output gaps.

Question 2

In the basic Keynesian model,an increase in autonomous spending

Accepted Answer

In the basic Keynesian model, an increase in autonomous spending, such as government spending, consumer spending, or investment, will shift the aggregate demand (AD) curve to the right. This will cause output to increase in the short-run until the economy reaches a new equilibrium at a higher level of output. Therefore, an increase in autonomous spending will increase short-run equilibrium output.

Question 3

Suppose C = 100 + 0.8(Y - T)and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in autonomous consumption from 100 to 115 will result in an increase in Y (GDP)of

Accepted Answer

The marginal propensity to consume (MPC) is 0.8. The multiplier is 1/(1-MPC) = 1/(1-0.8) = 5. An increase in autonomous consumption by 15 (from 100 to 115) will increase GDP by 15 * 5 = 75.

Question 4

In the basic Keynesian model,a $5 billion increase in autonomous planned investment leads to ________ in short-run equilibrium output.

Accepted Answer

According to the basic Keynesian model, an increase in autonomous planned investment will lead to a multiplied increase in equilibrium output due to the multiplier effect. The actual increase in output will depend on the size of the multiplier, which is determined by the marginal propensity to consume and the marginal tax rate. Therefore, the increase in output will be more than the initial increase in investment.

Question 5

Suppose C = 100 + 0.6(Y - T)and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in government purchases from G = 250 to G = 260 will result in an increase in Y (GDP)of

Accepted Answer

An increase in government purchases will lead to an increase in aggregate demand, which will in turn lead to an increase in GDP. The multiplier effect states that the increase in GDP will be greater than the initial increase in government purchases. In this case, the increase in government purchases is 10, so the increase in GDP will be 10 * 1/0.4 = 25.

Question 6

If planned aggregate expenditure in an economy can be written as: PAE = 1,000 + 0.5Y,what is the income-expenditure multiplier in this economy?

Accepted Answer

The income-expenditure multiplier is equal to 1/(1-MPC), where MPC is the marginal propensity to consume. In this case, MPC = 0.5, so the multiplier is 1/(1-0.5) = 2.0.

Question 7

In the basic Keynesian model,to close a recessionary gap of $1 billion,government purchases must be

Accepted Answer

The answer of In the basic Keynesian model,to close a...

Question 8

Suppose C = 100 + 0.75(Y - T)and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in net exports from NX = 50 to NX = 65 will result in an increase in Y (GDP)of

Accepted Answer

The answer of Suppose C = 100 + 0.75(Y -...

Question 9

In the basic Keynesian model,to close a recessionary gap of $5 billion,government purchases must be

Accepted Answer

The answer of In the basic Keynesian model,to close a...

Question 10

In the basic Keynesian model,a decrease in autonomous spending

Accepted Answer

In the basic Keynesian model, a decrease in autonomous spending leads to a decrease in aggregate demand. This leads to a decrease in short-run equilibrium output.

Question 11

Suppose C = 100 + 0.5(Y - T)and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in business investment from I = 150 to I = 175 will result in an increase in Y (GDP)of

Accepted Answer

The increase in investment (I) by 25 will increase GDP (Y) by a multiplier effect. The marginal propensity to consume (MPC) is 0.5, so the multiplier is 1/(1-MPC) = 2. Therefore, the increase in GDP is 25 * 2 = 50.

Question 12

If planned aggregate expenditure in an economy can be written as:
PAE = 10,000 + 0.45Y,what is the income-expenditure multiplier in this economy?

Accepted Answer

The income-expenditure multiplier is calculated as:

1 / (1 - MPC),

where MPC is the marginal propensity to consume. In this case, the MPC is equal to 0.45, so the multiplier is:

1 / (1 - 0.45) = 1 / 0.55 = 1.82

Therefore, the answer is D.

Question 13

If planned aggregate expenditure in an economy can be written as: PAE = 5,000 + 0.6Y,what is the income-expenditure multiplier in this economy?

Accepted Answer

The income-expenditure multiplier in this economy can be calculated as: 
1/ (1- MPC) = 1/ (1- 0.6) = 2.5, where MPC (Marginal Propensity to Consume) = 0.6 (as given in the equation). Therefore, the correct choice is C.

Question 14

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional

Accepted Answer

The income-expenditure multiplier works by the additional spending of one person becoming the income of another person. This cycle repeats, leading to an increase in spending, making it the best choice.

Question 15

Suppose C = 100 + 0.6(Y - T)and T = 200,I = 150,G = 250 and NX = 50.Then,suppose government purchases are reduced from G = 250 to G = 240,and at the same time net exports increase from NX = 50 to NX = 70.The net result is an increase in Y (GDP)of

Accepted Answer

Plug in the given values in the equation:
Y = C + I + G + NX
Y = (100 + 0.6(Y - 200)) + 150 + 250 + 50
Y = 500 + 0.6Y - 120
0.4Y = 380
Y = 950

Now, when G is reduced by 10 and NX is increased by 20, the equation becomes:
Y = (100 + 0.6(Y - 200)) + 150 + 240 + 70
Y = 560 + 0.6Y
0.4Y = 560
Y = 1400

Therefore, the increase in Y (GDP) is:
1400 - 950 = 450, which is closest to option C) 45.

Question 16

Data on output and planned aggregate expenditure in Macroland are given below: 
Based on these data,the short-run equilibrium level of output is _________ and the income-expenditure multiplier equals ________.

Accepted Answer

The answer of Data on output and planned aggregate expenditure...

Question 17

Data on output and planned aggregate expenditure in Macroland are given below: 
Based on these data,the short-run equilibrium level of output is _________ and the income-expenditure multiplier equals _________.

Accepted Answer

The answer of Data on output and planned aggregate expenditure...

Question 18

Stabilization policies are government policies used to affect __________,with the objective of eliminating output gaps.

Accepted Answer

Stabilization policies aim to influence planned aggregate expenditure to manage economic fluctuations and close output gaps, ensuring the economy operates near its potential output.

Question 19

Suppose C = 100 + 0.5(Y - T)and T = 200,I = 150,G = 250 and NX = 50.If government purchases are reduced from G = 250 to G = 210,and at the same time net exports increase from NX = 50 to NX = 60,the net result is a decrease in Y (GDP)of

Accepted Answer

The answer of Suppose C = 100 + 0.5(Y -...

Question 20

In the basic Keynesian model,a $5 billion decrease in autonomous planned private-sector investment leads to ________ in short-run equilibrium output.

Accepted Answer

In the basic Keynesian model, a decrease in autonomous investment leads to a multiplied decrease in equilibrium output due to the multiplier effect, resulting in a decrease of more than $5 billion.

Quiz 8: The Reserve Bank and the Economy

Policies that are used to affect planned aggregate expenditure,with the objective of eliminating output gaps,are called _________ policies.

In the basic Keynesian model,an increase in autonomous spending

Suppose C = 100 + 0.8(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in autonomous consumption from 100 to 115 will result in an increase in Y (GDP) of

In the basic Keynesian model,a $5 billion increase in autonomous planned investment leads to ________ in short-run equilibrium output.

Suppose C = 100 + 0.6(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in government purchases from G = 250 to G = 260 will result in an increase in Y (GDP) of

If planned aggregate expenditure in an economy can be written as: PAE = 1,000 + 0.5Y,what is the income-expenditure multiplier in this economy?

In the basic Keynesian model,to close a recessionary gap of $1 billion,government purchases must be

Suppose C = 100 + 0.75(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in net exports from NX = 50 to NX = 65 will result in an increase in Y (GDP) of

In the basic Keynesian model,to close a recessionary gap of $5 billion,government purchases must be

In the basic Keynesian model,a decrease in autonomous spending

Suppose C = 100 + 0.5(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in business investment from I = 150 to I = 175 will result in an increase in Y (GDP) of

If planned aggregate expenditure in an economy can be written as: PAE = 10,000 + 0.45Y,what is the income-expenditure multiplier in this economy?

If planned aggregate expenditure in an economy can be written as: PAE = 5,000 + 0.6Y,what is the income-expenditure multiplier in this economy?

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional

Suppose C = 100 + 0.6(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,suppose government purchases are reduced from G = 250 to G = 240,and at the same time net exports increase from NX = 50 to NX = 70.The net result is an increase in Y (GDP) of

Data on output and planned aggregate expenditure in Macroland are given below: Based on these data,the short-run equilibrium level of output is _ and the income-expenditure multiplier equals .

Data on output and planned aggregate expenditure in Macroland are given below: Based on these data,the short-run equilibrium level of output is _ and the income-expenditure multiplier equals _.

Stabilization policies are government policies used to affect __________,with the objective of eliminating output gaps.

Suppose C = 100 + 0.5(Y - T) and T = 200,I = 150,G = 250 and NX = 50.If government purchases are reduced from G = 250 to G = 210,and at the same time net exports increase from NX = 50 to NX = 60,the net result is a decrease in Y (GDP) of

In the basic Keynesian model,a $5 billion decrease in autonomous planned private-sector investment leads to ________ in short-run equilibrium output.

Quiz 8: The Reserve Bank and the Economy

Policies that are used to affect planned aggregate expenditure,with the objective of eliminating output gaps,are called _________ policies.

In the basic Keynesian model,an increase in autonomous spending

Suppose C = 100 + 0.8(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in autonomous consumption from 100 to 115 will result in an increase in Y (GDP) of

In the basic Keynesian model,a $5 billion increase in autonomous planned investment leads to ________ in short-run equilibrium output.

Suppose C = 100 + 0.6(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in government purchases from G = 250 to G = 260 will result in an increase in Y (GDP) of

If planned aggregate expenditure in an economy can be written as: PAE = 1,000 + 0.5Y,what is the income-expenditure multiplier in this economy?

In the basic Keynesian model,to close a recessionary gap of $1 billion,government purchases must be

Suppose C = 100 + 0.75(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in net exports from NX = 50 to NX = 65 will result in an increase in Y (GDP) of

In the basic Keynesian model,to close a recessionary gap of $5 billion,government purchases must be

In the basic Keynesian model,a decrease in autonomous spending

Suppose C = 100 + 0.5(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,an increase in business investment from I = 150 to I = 175 will result in an increase in Y (GDP) of

If planned aggregate expenditure in an economy can be written as: PAE = 10,000 + 0.45Y,what is the income-expenditure multiplier in this economy?

If planned aggregate expenditure in an economy can be written as: PAE = 5,000 + 0.6Y,what is the income-expenditure multiplier in this economy?

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional

Suppose C = 100 + 0.6(Y - T) and T = 200,I = 150,G = 250 and NX = 50.Then,suppose government purchases are reduced from G = 250 to G = 240,and at the same time net exports increase from NX = 50 to NX = 70.The net result is an increase in Y (GDP) of

Data on output and planned aggregate expenditure in Macroland are given below: Based on these data,the short-run equilibrium level of output is _________ and the income-expenditure multiplier equals ________.

Data on output and planned aggregate expenditure in Macroland are given below: Based on these data,the short-run equilibrium level of output is _________ and the income-expenditure multiplier equals _________.

Stabilization policies are government policies used to affect __________,with the objective of eliminating output gaps.

Suppose C = 100 + 0.5(Y - T) and T = 200,I = 150,G = 250 and NX = 50.If government purchases are reduced from G = 250 to G = 210,and at the same time net exports increase from NX = 50 to NX = 60,the net result is a decrease in Y (GDP) of

In the basic Keynesian model,a $5 billion decrease in autonomous planned private-sector investment leads to ________ in short-run equilibrium output.

Data on output and planned aggregate expenditure in Macroland are given below: Based on these data,the short-run equilibrium level of output is _ and the income-expenditure multiplier equals .

Data on output and planned aggregate expenditure in Macroland are given below: Based on these data,the short-run equilibrium level of output is _ and the income-expenditure multiplier equals _.