Question 1

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 120 + 0.86Y,I = 300,G = 520,T = 0,X = 180,IM = 0.12Y.Equilibrium national income is
A)2037.48.
B)3615.24.
C)4000.00.
D)4307.70.
E)8000.00.

Accepted Answer

In this demand-determined model, equilibrium national income is determined when aggregate demand (Y) equals output (Y).

The equation for aggregate demand is:

Y = C + I + G + X - IM - T

Substituting in the given values:

Y = (120 + 0.86Y) + 300 + 520 + 180 - 0.12Y - 0

Simplifying:

Y = 1120 + 0.74Y

0.26Y = 1120

Y = 4307.70

Therefore, the equilibrium national income is $4307.70, which is option D.

Question 2

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.Desired consumption expenditure at equilibrium national income is
A)1675.44.
B)4060.04.
C)4830.00.
D)4980.00.
E)6815.40.

Accepted Answer

The answer of Consider a simple macro model with a...

Question 3

In a simple macro model with a constant price level,an increase in the net tax rate causes the AE curve to
A)shift parallel downward.
B)shift parallel upward.
C)rotate downward.
D)rotate upward.
E)remain stationary.

Accepted Answer

The answer of In a simple macro model with a...

Question 4

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.Equilibrium national income is
A)560.00.
B)888.89.
C)1142.85.
D)1302.33.
E)1513.50.

Accepted Answer

In equilibrium, national income (Y) is equal to output (Y) which is equal to aggregate demand (AD).

AD = C + I + G + X - IM

AD = (60 + 0.43Y) + 150 + 260 + 90 - 0.06Y

AD = 560 + 0.37Y

Equating AD with Y:

Y = 560 + 0.37Y

0.63Y = 560

Y = 888.89

Therefore, the equilibrium national income is $888.89.

Question 5

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.Equilibrium national income is
A)1816.
B)5750.
C)7307.
D)7935.
E)17 250.

Accepted Answer

The answer of Consider a simple macro model with a...

Question 6

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.The trade balance at equilibrium national income is
A)a deficit of 36.67.
B)a deficit of 21.43.
C)zero.
D)a surplus of 21.43.
E)a surplus of 36.67.

Accepted Answer

The answer of Consider a simple macro model with a...

Question 7

Consider the following news headline: "Minister of Defence announces $2 billion purchase of military helicopters." Assuming that aggregate output is demand-determined,and that the helicopters are purchased domestically,what will be the effect of this action,all other things equal,on the AE function and equilibrium national income?
A)The AE function will shift down parallel to itself and equilibrium national income will fall.
B)The AE function will rotate upward (become steeper)and equilibrium national income will rise.
C)The AE function will rotate downward (become flatter)and national income will fall.
D)The AE function will shift up parallel to itself and equilibrium national income will rise.
E)There will be no change in the AE function or in equilibrium national income.

Accepted Answer

The purchase of military helicopters will increase government expenditure, which will shift the AE function up parallel to itself. This will result in an increase in equilibrium national income.

Question 8

Consider the following news headline: "Finance minister announces that the federal income-tax rate will rise by three percentage points." Assuming that aggregate output is demand-determined,what will be the effect of this action,all other things equal,on the AE function and equilibrium national income?
A)The AE function will shift down parallel to itself and equilibrium national income will fall.
B)The AE function will rotate upward (become steeper)and equilibrium national income will rise.
C)The AE function will rotate downward (become flatter)and national income will fall.
D)The AE function will shift up parallel to itself and equilibrium national income will rise.
E)There will be no change in the AE function or in equilibrium national income.

Accepted Answer

The answer of Consider the following news headline: "Finance minister...

Question 9

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,X = 130,IM = 0.08Y,T = 0.Equilibrium national income is 5000 when G is equal to
A)-40.
B)520.
C)580.
D)740.
E)812.

Accepted Answer

The answer of Consider a simple macro model with a...

Question 10

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 120 + 0.86Y,I = 300,G = 520,T = 0,X = 180,IM = 0.12Y.Desired consumption expenditure at equilibrium national income is
A)3113.5.
B)3307.7.
C)3824.6.
D)4250.
E)Not enough information to determine

Accepted Answer

The answer of Consider a simple macro model with a...

Question 11

In a simple macro model with a constant price level,a decrease in the net tax rate causes the AE curve to
A)shift parallel downward.
B)shift parallel upward.
C)rotate downward.
D)rotate upward.
E)remain stationary.

Accepted Answer

The answer of In a simple macro model with a...

Question 12

Suppose that the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is 0.14.If the net tax rate is 0.1,then what is the marginal propensity to spend in this economy?
A)0.30
B)0.40
C)0.46
D)0.50
E)0.60

Accepted Answer

The answer of Suppose that the marginal propensity to consume...

Question 13

Consider a macro model with demand-determined output.The equations are: C = 150 + 0.8Yd,Yd = Y-T,I = 400,G = 700,T = 0.2Y,X = 130,and IM = 0.14Y.Equilibrium national income in this model is
A)1120.
B)1350.
C)2240.
D)2760.
E)5400.

Accepted Answer

The answer of Consider a macro model with demand-determined output.The...

Question 14

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.The trade balance at equilibrium national income is a
A)deficit of 504.8.
B)deficit of 460.0.
C)deficit of 330.0.
D)surplus of 125.0.
E)surplus of 15.3.

Accepted Answer

The answer of Consider a simple macro model with a...

Question 15

Consider the following macro model with demand-determined output: C = 150 + 0.9  ,  = 0.8Y,I = 400,G = 700,T = (0.2)Y,X = 130,IM = (0.08)Y.Equilibrium national income is
A)1380.00.
B)1916.67.
C)2156.25.
D)3833.33.
E)4928.57.

Accepted Answer

The answer of Consider the following macro model with demand-determined...

Question 16

In an open economy with government and demand-determined output,an increase in the equilibrium level of national income could be caused by
A)an increase in taxes at all levels of income.
B)an increase in the desired level of imports at all levels of income.
C)a decrease in desired consumption at all levels of income.
D)a decrease in the desired level of saving at all levels of income.
E)a decrease in government purchases.

Accepted Answer

A decrease in the desired level of saving at all levels of income would lead to an increase in consumption expenditure, which would increase aggregate demand and therefore lead to an increase in the equilibrium level of national income. The other options would act to decrease aggregate demand and decrease the equilibrium level of national income.

Question 17

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy:
∙ marginal propensity to consume (mpc)= 0.75
∙ net tax rate (t)= 0.20
∙ no foreign trade
∙ fixed price level
∙ all expenditure and income figures are in billions of dollars.  FIGURE 22-2
-Refer to Figure 22-2.What is the equilibrium national income in this economy?
A)$187.50
B)$294
C)$333.34
D)$625
E)$1666.67

Accepted Answer

The answer of The diagram below shows desired aggregate expenditure...

Question 18

FIGURE 22-4 -Refer to Figure 22-4.Autonomous expenditures ________ as the AE curve rotates from AE₁ to AE₀and equilibrium national income ________. A)decrease; decreases B)increase; decreases C)remain constant; increases D)remain constant; decreases E)remain constant; remains constant

Accepted Answer

The answer of  FIGURE 22-4
-Refer to Figure 22-4.Autonomous expenditures...

Question 19

Consider a simple macro model with a constant price level and demand-determined output.When national income falls short of desired aggregate expenditures,unplanned inventory ________ will induce firms to ________ the rate of output production.
A)depletion; lower
B)depletion; raise
C)buildup; lower
D)buildup; raise
E)at zero; maintain the current

Accepted Answer

When national income falls short of desired aggregate expenditures, it means that actual sales are higher than expected, leading to unplanned inventory depletion. Firms will respond by raising the rate of output production to replenish their inventories and meet the higher demand.

Question 20

In an open economy with government and demand-determined output,a decrease in the equilibrium level of national income could be caused by
A)a decrease in taxes at all levels of income.
B)a decrease in the desired level of imports at all levels of income.
C)a decrease in desired consumption at all levels of income.
D)a decrease in the desired level of saving at all levels of income.
E)an increase in government purchases.

Accepted Answer

A decrease in desired consumption at all levels of income directly reduces aggregate demand, leading to a decrease in the equilibrium level of national income.

Quiz 22: Adding Government and Trade to the Simple Macro Model

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 120 + 0.86Y,I = 300,G = 520,T = 0,X = 180,IM = 0.12Y.Equilibrium national income is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.Desired consumption expenditure at equilibrium national income is

In a simple macro model with a constant price level,an increase in the net tax rate causes the AE curve to

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.Equilibrium national income is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.Equilibrium national income is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.The trade balance at equilibrium national income is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,X = 130,IM = 0.08Y,T = 0.Equilibrium national income is 5000 when G is equal to

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 120 + 0.86Y,I = 300,G = 520,T = 0,X = 180,IM = 0.12Y.Desired consumption expenditure at equilibrium national income is

In a simple macro model with a constant price level,a decrease in the net tax rate causes the AE curve to

Suppose that the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is 0.14.If the net tax rate is 0.1,then what is the marginal propensity to spend in this economy?

Consider a macro model with demand-determined output.The equations are: C = 150 + 0.8Yd,Yd = Y-T,I = 400,G = 700,T = 0.2Y,X = 130,and IM = 0.14Y.Equilibrium national income in this model is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.The trade balance at equilibrium national income is a

Consider the following macro model with demand-determined output: C = 150 + 0.9 , = 0.8Y,I = 400,G = 700,T = (0.2) Y,X = 130,IM = (0.08) Y.Equilibrium national income is

In an open economy with government and demand-determined output,an increase in the equilibrium level of national income could be caused by

FIGURE 22-4 -Refer to Figure 22-4.Autonomous expenditures as the AE curve rotates from AE₁ to AE₀and equilibrium national income .

Consider a simple macro model with a constant price level and demand-determined output.When national income falls short of desired aggregate expenditures,unplanned inventory will induce firms to the rate of output production.

In an open economy with government and demand-determined output,a decrease in the equilibrium level of national income could be caused by

Quiz 22: Adding Government and Trade to the Simple Macro Model

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 120 + 0.86Y,I = 300,G = 520,T = 0,X = 180,IM = 0.12Y.Equilibrium national income is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.Desired consumption expenditure at equilibrium national income is

In a simple macro model with a constant price level,an increase in the net tax rate causes the AE curve to

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.Equilibrium national income is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.Equilibrium national income is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.The trade balance at equilibrium national income is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,X = 130,IM = 0.08Y,T = 0.Equilibrium national income is 5000 when G is equal to

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 120 + 0.86Y,I = 300,G = 520,T = 0,X = 180,IM = 0.12Y.Desired consumption expenditure at equilibrium national income is

In a simple macro model with a constant price level,a decrease in the net tax rate causes the AE curve to

Suppose that the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is 0.14.If the net tax rate is 0.1,then what is the marginal propensity to spend in this economy?

Consider a macro model with demand-determined output.The equations are: C = 150 + 0.8Yd,Yd = Y-T,I = 400,G = 700,T = 0.2Y,X = 130,and IM = 0.14Y.Equilibrium national income in this model is

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.The trade balance at equilibrium national income is a

Consider the following macro model with demand-determined output: C = 150 + 0.9 , = 0.8Y,I = 400,G = 700,T = (0.2) Y,X = 130,IM = (0.08) Y.Equilibrium national income is

In an open economy with government and demand-determined output,an increase in the equilibrium level of national income could be caused by

FIGURE 22-4 -Refer to Figure 22-4.Autonomous expenditures ________ as the AE curve rotates from AE1 to AE0 and equilibrium national income ________.

Consider a simple macro model with a constant price level and demand-determined output.When national income falls short of desired aggregate expenditures,unplanned inventory ________ will induce firms to ________ the rate of output production.

In an open economy with government and demand-determined output,a decrease in the equilibrium level of national income could be caused by

FIGURE 22-4 -Refer to Figure 22-4.Autonomous expenditures as the AE curve rotates from AE₁ to AE₀and equilibrium national income .

Consider a simple macro model with a constant price level and demand-determined output.When national income falls short of desired aggregate expenditures,unplanned inventory will induce firms to the rate of output production.