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Exam 11: The Aggregate Expenditures Model

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Question 21

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Assume that investment,net exports,government expenditures,and taxes do not change with changes in real GDP and the MPC is .75. (a)Suppose government spending increases by $20 billion.What is the impact on real GDP? (b)Suppose that instead lump-sum taxes increase by $20 billion.What is the impact on real GDP? (c)How would the results in (a)and (b)be different if imports and taxes increase as real GDP increases?

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(a)Since the MPC is .75,the multiplier i...

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Question 22

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The data in the first two columns below are for a closed economy without government.Use this table to answer the following questions.

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(a)What is the equilibrium GDP for the...

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Question 23

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"If taxes and government spending are increased by the same amount,there will still be a positive effect on equilibrium GDP." Explain.

What is the effect of net exports,either positive or negative,on equilibrium GDP?

In addition to stuck prices,what are the two simplifying assumptions of the initial model in this chapter? What are two implications from these simplifications?

Assume the level of investment is $8 billion and independent of the level of total output.Complete the following table and answer the following questions about this private closed economy.

What is the difference between the multiplier in a closed private economy and the multiplier in a mixed open economy?

Define the equilibrium level of output.

Keynes developed his theory during the height of the Great Depression (a severe recessionary gap)in the 1930s.What two policy tools did he recommend to close this gap?

Explain why are nations are tempted to use policies of imposing tariffs on imported goods,and devaluating their national currency? Further explain why implementing such policies are huge mistakes?

What are two components of aggregate expenditures in a closed private economy?

When international trade is considered,explain how net exports could be either positive or negative additions to aggregate expenditures.In which case would the impact of net exports be expansionary? Explain.

Explain the relationship between net exports and the following factors: prosperity abroad,tariffs on Canadian exports abroad,depreciation of the Canadian dollar on foreign exchange markets.

Whenever there is an upshift or downshift in aggregate expenditures due to a change in one of its non-income determinants,the equilibrium GDP changes by a multiple of the initial change in spending.Explain this multiplier effect.

In a graph relating private spending (C + I_g)to real gross domestic product (GDP),what does the 45-degree line represent?

Other things being constant,what will be the effect of each of the following upon the equilibrium level of GDP? (a)An increase in the amount of liquid assets consumers are holding; (b)A sharp rise in stock prices; (c)A rapid upsurge in the rate of technological advance;and (d)A sharp increase in the interest rate.

Use the table below to answer the following questions.Assume that investment,net exports,government expenditures,and taxes do not change with changes in real GDP.

Evaluate the statement that "for an open economy the equilibrium GDP always corresponds with an equality of exports and imports."

What is the difference between the investment-demand curve and the investment schedule for the economy?

Explain why saving equals planned investment at equilibrium GDP.