Question 1

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:

Multiplier = change in equilibrium real GDP / change in autonomous expenditure

In this case, the change in autonomous investment is $40 billion, and the change in equilibrium real GDP is $100 billion.

Multiplier = $100 billion / $40 billion = 2.5

Therefore, the statement is true.

Question 2

Personal saving is real GDP not spent on consumption.

Accepted Answer

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

Question 3

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

Accepted Answer

Induced consumption is the part of consumption that changes with income, calculated as .6Y. For Y = $1,000 billion, induced consumption is .6 * $1,000 billion = $600 billion.

Question 4

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

Accepted Answer

Induced aggregate expenditures are those that are influenced by changes in real GDP, such as consumer spending and investment spending.

Question 5

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 statement is known as the expenditure multiplier model in macroeconomics, which states that an initial increase in autonomous expenditure leads to a larger increase in the total aggregate demand due to a multiplier effect. The magnitude of the multiplier depends on the marginal propensity to consume (MPC), which is the fraction of each additional dollar of income that is spent on consumption. The formula for the expenditure multiplier is 1/(1-MPC), which indicates the total change in aggregate demand is equal to the initial change in autonomous expenditure multiplied by the multiplier.

Question 6

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 7

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

Accepted Answer

The given statement is true. The marginal propensity to consume (MPC) is the ratio of the change in consumption to the change in disposable personal income. In this case, the change in consumption is $75 billion and the change in disposable personal income is $100, resulting in an MPC of 0.75 ($75 billion/$100).

Question 8

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

Accepted Answer

An increase in the price level would actually shift the aggregate expenditures curve downwards, as the higher prices would cause a decrease in consumption, investment, and net exports, leading to a lower level of aggregate expenditures.

Question 9

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

Accepted Answer

Autonomous aggregate expenditures are those that are not determined by the level of real GDP, such as government spending, investment by firms, and exports.

Question 10

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 given equation shows that consumption (C) depends on the level of disposable income (Y_d). However, the equation does not provide any information about the effect of tax rates on consumption. Therefore, we cannot conclude that C will always be equal to $1,150 billion for any positive tax rate.

Question 11

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

Accepted Answer

This statement correctly defines the formula for the multiplier.

Question 12

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 13

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 14

A change in aggregate demand causes a change in income, which in turn induces a change in consumption.

Accepted Answer

A change in aggregate demand can shift the AD curve and change the equilibrium level of output and income. This change in income can then affect consumption levels as people may adjust their spending habits based on their income levels.

Question 15

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 16

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

Accepted Answer

There is no consumption when real GDP equals zero. Induced consumption refers to the consumption that is influenced by changes in income level, which means it only occurs when there is income or output.

Question 17

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

Accepted Answer

A decrease in price level increases the purchasing power of consumers, leading to an increase in consumption spending and other components of aggregate expenditures, thus shifting the aggregate expenditures curve upwards.

Question 18

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 19

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...

Quiz 13: Consumption and the Aggregate Expenditures Model