Question 1

Refer to the accompanying figure.  Based on the Keynesian cross diagram, if output equals 5,000, planned aggregate expenditure is ________ output, and firms will ________ production in response.

Accepted Answer

Short-run equilibrium output occurs where PAE crosses the 45-degree line, which occurs at output level 4,000. If output is 5,000, PAE is 1,000 + (0.75 × 5,000)= 4,750, so output equal to 250 goes unsold. As firms notice unplanned increases in their inventories, they will decrease production.

Question 2

Refer to the accompanying figure.  Based on the Keynesian cross diagram, short-run equilibrium output equals:

Accepted Answer

Short-run equilibrium output occurs where PAE crosses the 45-degree line, which occurs at output level 4,000.

Question 3

Refer to the accompanying figure.  Based on the figure, and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending decreases by 1,000, then the new short-run equilibrium output (Y )is equal to:

Accepted Answer

Short-run equilibrium output (Y )occurs where the PAE line intersects the 45-degree line, which is 16,000 for the PAE line 4,000 + 0.75Y.

Question 4

In the basic Keynesian model, a decline in autonomous spending:

Accepted Answer

A decline in autonomous spending causes the PAE curve to shift downward, which causes the intersection with the 45-degree line to move down and to the left, reducing short-run equilibrium output.

Question 5

Refer to the accompanying figure.  Based on the Keynesian cross diagram, at short-run equilibrium output,

Accepted Answer

Short-run equilibrium output occurs where PAE crosses the 45-degree line, at output level 4,000. Since potential output (Y*)is 3,000, there is an expansionary gap.

Question 6

Refer to the accompanying figure.  Based on the figure, if autonomous spending increases from 400 to 600, then the new short-run equilibrium output will equal:

Accepted Answer

Autonomous spending is the vertical intercept of PAE. As the curve shifts upward from an intercept of 400 to 600, equilibrium output rises from 800 to 1,200.

Question 7

In the short run, with predetermined prices, when output is less than planned aggregate expenditure:

Accepted Answer

In this case, planned aggregate expenditure is greater than output so inventories are shrinking. That means actual investment, due to falling inventory, is less than planned investment.

Question 8

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

Accepted Answer

Since prices are fixed, firms will respond to unwanted reductions in inventories by increasing production.

Question 9

In the Keynesian cross diagram, the vertical intercept of the expenditure line equals ________ and the slope of the expenditure line equals ________.

Accepted Answer

The total amount of expenditures has two parts: the autonomous part (shown by the vertical intercept), which is independent of output, and the induced part, which depends on output. In the basic Keynesian model, only consumption has an induced component, and the mpc shows the rate at which expenditure rises when output rises.

Question 10

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

Accepted Answer

Since prices are fixed, firms will respond to unwanted growing inventories by reducing production.

Question 11

Refer to the accompanying figure.  Based on the figure, if autonomous spending falls from 400 to 200, then the new short-run equilibrium output will equal:

Accepted Answer

Autonomous spending is the vertical intercept of PAE. As the curve shifts downward from an intercept of 400 to 200, equilibrium output falls from 800 to 400.

Question 12

In the Keynesian cross diagram, the 45-degree line represents the short-run equilibrium condition that:

Accepted Answer

The 45-degree line is the set of all possible equilibrium points. This is where output equals planned aggregate expenditure, or Y = PAE.

Question 13

Refer to the accompanying figure.  Based on the figure, when PAE = 200 + 0.5Y, short-run equilibrium output equals:

Accepted Answer

Equilibrium occurs where the 45-degree line intersects the PAE line. In this case, intersection occurs at output equal to 400.

Question 14

In the Keynesian cross diagram, the ________ line shows the relationship between planned aggregate expenditure and output, and the ________ line represents the condition that planned aggregate expenditure and output are equal.

Accepted Answer

The expenditure line relates planned aggregate expenditure to output by definition. The 45-degree line is the set of points showing equality between planned aggregate expenditure and output.

Question 15

Refer to the accompanying figure.  Based on the figure, when PAE = 600 + 0.5Y, short-run equilibrium output equals:

Accepted Answer

Equilibrium occurs where the 45-degree line intersects the PAE line. In this case, intersection occurs at output equal to 1,200.

Question 16

Refer to the accompanying figure.  Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y)is equal to:

Accepted Answer

Short-run equilibrium output (Y)occurs where the PAE line intersects the 45-degree line, which is 24,000 for the PAE line 6,000 + 0.75Y.

Question 17

Refer to the accompanying figure.  Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals:

Accepted Answer

Equilibrium occurs where the 45-degree line intersects the PAE line. In this case, intersection occurs at output equal to 800.

Question 18

Refer to the accompanying figure.  Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ________ and induced expenditure equals ________.

Accepted Answer

Short-run equilibrium output occurs where PAE crosses the 45-degree line, which occurs at output level 4,000. At that output, autonomous expenditure equals 1,000 (the vertical intercept of PAE )and induced expenditure equals the rest, or 0.75 × 4,000 = 3,000.

Question 19

The expenditure line in the Keynesian cross diagram represents the:

Accepted Answer

Looking at the axes of the Keynesian cross diagram, the horizontal axis is output and the vertical axis is planned aggregate expenditure (PAE ). The expenditure line shows the relationship between these two variables.

Question 20

In the short run, with predetermined prices, when output is greater than planned aggregate expenditures:

Accepted Answer

In this case, planned aggregate expenditure is less than output so unintended inventory is accumulating. That means actual investment, due to growing inventory, is greater than planned investment.

Quiz 25: Spending and Output in the Short Run

Refer to the accompanying figure. Based on the Keynesian cross diagram, if output equals 5,000, planned aggregate expenditure is output, and firms will production in response.

Refer to the accompanying figure. Based on the Keynesian cross diagram, short-run equilibrium output equals:

Refer to the accompanying figure. Based on the figure, and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending decreases by 1,000, then the new short-run equilibrium output (Y ) is equal to:

In the basic Keynesian model, a decline in autonomous spending:

Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output,

Refer to the accompanying figure. Based on the figure, if autonomous spending increases from 400 to 600, then the new short-run equilibrium output will equal:

In the short run, with predetermined prices, when output is less than planned aggregate expenditure:

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

In the Keynesian cross diagram, the vertical intercept of the expenditure line equals and the slope of the expenditure line equals .

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

Refer to the accompanying figure. Based on the figure, if autonomous spending falls from 400 to 200, then the new short-run equilibrium output will equal:

In the Keynesian cross diagram, the 45-degree line represents the short-run equilibrium condition that:

Refer to the accompanying figure. Based on the figure, when PAE = 200 + 0.5Y, short-run equilibrium output equals:

In the Keynesian cross diagram, the line shows the relationship between planned aggregate expenditure and output, and the line represents the condition that planned aggregate expenditure and output are equal.

Refer to the accompanying figure. Based on the figure, when PAE = 600 + 0.5Y, short-run equilibrium output equals:

Refer to the accompanying figure. Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y) is equal to:

Refer to the accompanying figure. Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals:

Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals and induced expenditure equals .

The expenditure line in the Keynesian cross diagram represents the:

In the short run, with predetermined prices, when output is greater than planned aggregate expenditures: