Question 1

What is the difference between the aggregate expenditures curve and the aggregate demand
curve?

Accepted Answer

The answer of What is the difference between the aggregate...

Question 2

What is the marginal propensity to consume? Explain why the sum of marginal propensity
to consume and marginal propensity to save must equal 1.

Accepted Answer

The answer of What is the marginal propensity to consume?...

Question 3

Distinguish between planned and unplanned investment, and explain their relationship to
the aggregate expenditures model and to equilibrium real GDP.

Accepted Answer

The answer of Distinguish between planned and unplanned investment, and...

Question 4

An increase in the price level, all other things unchanged, shifts the aggregate expenditures
curve upwards.

Accepted Answer

An increase in the price level will decrease the real value of money and thus decrease aggregate expenditures, shifting the curve downwards. This is known as the wealth effect.

Question 5

Aggregate expenditures that do not vary with real GDP are called autonomous aggregate
expenditures.

Accepted Answer

Autonomous aggregate expenditures are not affected by changes in real GDP and stay constant regardless of the level of output. Examples include government spending, investment spending by firms and exports, which are influenced by factors other than current economic conditions.

Question 6

If C = $400 billion + 0.75(Y_d) and if real GDP is $1,000 billion, then for any positive tax rate, C =$1,150 billion.

Accepted Answer

The equation given for C includes variables that are not defined or given in the question, such as Y_d, making it impossible to accurately determine the value of C. Therefore, it is not possible to determine whether or not C would be equal to $1,150 billion for any positive tax rate.

Question 7

If consumption is $80 billion when income is $100, the most likely value for the marginal propensity to consume is 0.8.

Accepted Answer

The answer of If consumption is $80 billion when income...

Question 8

A decrease in the price level, all other things unchanged, shifts the aggregate expenditures
curve upwards.

Accepted Answer

A decrease in the price level increases the purchasing power of consumers and shifts the aggregate expenditures curve upwards. This is due to the fact that consumers can now afford to purchase more goods and services at lower prices.

Question 9

If consumption increases by $75 billion when disposable personal income increases by
$100, the marginal propensity to consume is 0.75.

Accepted Answer

The definition of marginal propensity to consume (MPC) is the change in consumption divided by the change in disposable personal income. In this scenario, the change in consumption is $75 billion and the change in disposable personal income is $100, so the MPC is 0.75.

Question 10

In the aggregate expenditures model, if a $50 billion increase in investment leads to an increase in equilibrium real GDP of $250 billion at the initial price level, then the multiplier is 4.

Accepted Answer

The answer of In the aggregate expenditures model, if a...

Question 11

What is the multiplier effect, that is, why does income change by a multiple of the initial
change in autonomous aggregate expenditures?

Accepted Answer

The answer of What is the multiplier effect, that is,...

Question 12

Personal saving is real GDP not spent on consumption.

Accepted Answer

The answer of Personal saving is real GDP not spent...

Question 13

The amount of consumption that takes place when real GDP equals zero is called induced
consumption.

Accepted Answer

When real GDP equals zero, there is no income or output to induce consumption. In fact, consumption is likely to be very low or nonexistent in such a scenario. Therefore, there is no concept of induced consumption at zero real GDP.

Question 14

If C = $500 billion + .6Y, then, if Y = $1,000 billion, induced consumption will be equal to
$1,100 billion.

Accepted Answer

The answer of If C = $500 billion + .6Y,...

Question 15

A change in autonomous aggregate expenditures will shift aggregate demand by an amount
equal to the change in autonomous aggregate expenditures times the multiplier.

Accepted Answer

This is the formula for calculating the impact of changes in autonomous aggregate expenditures on aggregate demand, which is based on the multiplier effect.

Question 16

Aggregate expenditures that vary with real GDP are called induced aggregate expenditures.

Accepted Answer

Induced aggregate expenditures are those that are tied to changes in real GDP, such as consumer spending, government purchases, and net exports.

Question 17

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

Accepted Answer

The multiplier is calculated as the change in equilibrium real GDP divided by the initial change in autonomous investment. Therefore, multiplier = (100/40) = 2.5.

Question 18

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

Accepted Answer

This is the definition of the spending or fiscal multiplier.

Quiz 13: Consumption and the Aggregate Expenditures Model

What is the difference between the aggregate expenditures curve and the aggregate demand curve?

What is the marginal propensity to consume? Explain why the sum of marginal propensity to consume and marginal propensity to save must equal 1.

Distinguish between planned and unplanned investment, and explain their relationship to the aggregate expenditures model and to equilibrium real GDP.

An increase in the price level, all other things unchanged, shifts the aggregate expenditures curve upwards.

Aggregate expenditures that do not vary with real GDP are called autonomous aggregate expenditures.

If C = $400 billion + 0.75(Yd) and if real GDP is $1,000 billion, then for any positive tax rate, C =$1,150 billion.

If consumption is $80 billion when income is $100, the most likely value for the marginal propensity to consume is 0.8.

A decrease in the price level, all other things unchanged, shifts the aggregate expenditures curve upwards.

If consumption increases by $75 billion when disposable personal income increases by $100, the marginal propensity to consume is 0.75.

In the aggregate expenditures model, if a $50 billion increase in investment leads to an increase in equilibrium real GDP of $250 billion at the initial price level, then the multiplier is 4.

What is the multiplier effect, that is, why does income change by a multiple of the initial change in autonomous aggregate expenditures?

Personal saving is real GDP not spent on consumption.

The amount of consumption that takes place when real GDP equals zero is called induced consumption.

If C = $500 billion + .6Y, then, if Y = $1,000 billion, induced consumption will be equal to $1,100 billion.

A change in autonomous aggregate expenditures will shift aggregate demand by an amount equal to the change in autonomous aggregate expenditures times the multiplier.

Aggregate expenditures that vary with real GDP are called induced aggregate expenditures.

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

The multiplier is found by dividing the change in equilibrium real GDP by the change in autonomous aggregate expenditures.

If C = $400 billion + 0.75(Y_d) and if real GDP is $1,000 billion, then for any positive tax rate, C =$1,150 billion.