Question 1

What are the determinants of investment in the simple Keynesian model? Explain each determinant briefly in your response.

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Question 2

What are the determinants of consumption and savings in the Keynesian model? Explain each determinant briefly.

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Question 3

Joe figures that if the spending multiplier is 5 and the economy needs a $10 billion increase in aggregate expenditures to reach full employment,the proper tax policy is to cut taxes by $2 billion.Critique Joe's logic.How much of a tax cut is required?

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Question 4

(Table)The table that follows shows the data for Keynesland.
Income
Aggregate Expenditures
$0
$100
$100
$150
$200
$200
$300
$250
$400
$300
$500
$350
$600
$400
Plot the data on an aggregate expenditure schedule.Suppose a housing boom causes consumption spending to rise by $100 at all levels.Graph the new aggregate expenditure schedule.By how much would equilibrium income rise? What is the value of the multiplier?

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Question 5

The multiplier effect is a domino effect as income goes from person to person.Explain.

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Question 6

Suppose the economy has more saving than investment.In the simple Keynesian model,how would the economy achieve equilibrium,assuming that desired investment is fixed?

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Question 7

(Table)The following table provides partial information on an economy with a government sector and net exports.
Spending Component
Amount (billions)
G
$5
X
3
S
4
T
7
M
7
If the economy is in equilibrium,what is the amount of investment?

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Question 8

Where does equilibrium occur in the simple Keynesian model?

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Question 9

Describe macroeconomic equilibrium in the full Keynesian model,with government and the foreign sectors.Compare this description with the simple Keynesian model.

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Question 10

Explain the multiplier process,how it is computed,and why it operates in both directions.Support your response with formulas and an example.

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Question 11

Suppose the marginal propensity to consume is 0.9.Jim decides to spend $1,000 on a small boat.How much of the new income in the first three rounds is new spending?

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Question 12

What are injections and withdrawals in the simple Keynesian model? Why must they be equal at equilibrium?

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Question 13

Analyze savings using the average propensity to save (APS)and the marginal propensity to save (MPS).Support your response with numerical examples.

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Quiz 8: Aggregate Expenditures