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Expenditure Multipliers
1) List the four components of aggregate expenditure. Explain the two-way link with real GDP.
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- Aggregate planned expenditure (trillions of 2009 dollars) 7 1 45° line AE2 AEO 2a) b) plan in th B A AE1 3a) 15 3 4 14 0 14 15 16 17 18 19 Real GDP (trillions of 2009 dollars) In the above figure the economy is initially at point A on the aggregate expenditure curve AEQ. Suppose investment decreases. As a result the AE curve shifts upward to a curve such as AE2. the AE curve shifts downward to a curve such as AE1. O there is a movement along AEO to a point such as B. O there is a movement along AEO to a point such as C. 5 6 7 81 90 100 109 b) T c) T d) It e) $1Which of the following is true: a) at equilibrium aggregate expenditure is greater than gross domestic expenditure. b) at equilibrium GDP is greater than gross domestic expenditure. c) at equilibrium aggregate expenditure is smaller than gross domestic expenditure. d) at equilibrium GDP is smaller than gross domestic expenditure or e) at equilibrium both aggregate expenditure and GDP are smaller than gross domestic expenditureUse the figure below to answer the following questions. Aggregate Expenditure (billions of 2012 dollars) 400 360 320 280 240 200 160 120 80 80 40 45° line AE 0 40 80 120 160 200 240 280 320 360 400 Real GDP (billions of 2012 dollars) The economy depicted does not engage in international trade and has no government. Planned aggregate expenditure (AE) is equal to the sum of consumption expenditure (C) and investment (I). Investment is $ billion. If investment increases by $75 billion, then real GDP increases by $ billion.
- a. The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by A) investment spending. B) export spending. C) government spending. D) the level of aggregate expenditure. b. U.S. net export rises when A) the price level in the United States rises relative to the price level in other countries. B) the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries. C) the value of the U.S. dollar increases relative to other currencies. D) the inflation rate is higher in the United States relative to other countries.Use the information in the following table to do exercises 8-15: silt 1 $20 $20 $4800 $20 $700xi $660 $20 Y $100 $300 $500 с $120 $300 G $30 $30 $30 $30 X $10 -$10 -$30 0-$503. If the current equilibrium GDP value is $925,000 and investment spending decreases by $25,000 with an MPC of 0.8, solve for the new equilibrium GDP.
- U.S. durable goods orders boosted by aircraft The Commerce Department reported that orders for durable goods increased 2.1 percent in July. Orders for Boeing aircraft rebounded. Source: Financial Times, August 26, 2019 Explain the process by which an increase in durable goods orders at a constant price level changes equilibrium expenditure and real GDP. A planned increase in durable goods is an increase in planned investment. When planned investment increases, _______. A. the economy moves production into investment from consumption expenditure, government expenditure on goods and services, and exports. Real GDP decreases B. real GDP cannot change unless the price level also changes C. real GDP increases by an amount equal to the change in investment. Disposable income decreases to make up for the increase in investment so that the economy returns to its long-run equilibrium D. real GDP initially increases by an amount equal to the change in…Answer the following questions concisely. Differentiate aggregate expenditure from consumption expenditure. What is disposable income? Explain the following: 1.Marginal propensity to consume 2.Induced expenditure 3.Savings 4.Life Cycle theory of ConsumptionProblem 1 The various expenditure categories within the economy are: C = 600+ 0.8Yd | 800 G = 600 NX = 0 T= 700 Refer to problem 1. Eguilibrium Real GDP is 清
- Real aggregate expenditure, AE (trillions of dollars) 0 Select one: 45° K Y = AE a. inventories will increase above their desired level. b. production is less than spending. c. the economy is in equilibrium. d. production is greater than spending. AE, Refer to Figure 12-1. If the economy is at a level of aggregate expenditure given by point K Real GDP, Y (trillions of dollars)2. From what was learned in class, explain what the values of the slope and vertical intercept of the aggregate consumption function mean from an economic perspective. Income-expenditure equilibrium Using the data in the following table to complete the following questions. GDP YD Planned (billions of dollars) $0 $0 $200 $100 400 400 500 100 800 800 800 100 1,200 1,200 1,100 100 1,600 1,600 1,400 100 2,000 2,000 1,700 100 2,500 2,500 2,000 100 3,000 3.000 2,300 100 1. Complete the columns for AEPlanned and unplanned in the table. 2. What is the value of the MPC? 3. What is the aggregate consumption function? AE Planned Unplanned 4. What is the equation for the planned aggregate expenditure function? 4. 5. What is the value of income-expenditure equilibrium GDP, (Y*)? 6. Explain in economic terms what happens when not in the income-expenditure equilibrium? Both when GDP > AE planned and GDP < AE planned. For each situation what needs to happen to move the economy toward equilibrium?.Consider the following economy. What is the mpc in this economy? Planned Government Net Exports Aggregate Change in Real GDP (Y) Consumption (C) Investment (I') Purchases (G) (NX) Expenditures (AE) Inventories 10000 8200 800 11000 9000 600 12000 9800 13000 14000 15000 800 Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a 0.50 b 0.75 C 0.80 d 0.90
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