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Eco 3

The relationship between investment and GDP is shown by the
investment schedule
in the aggregate expenditures model, it is assumed that investment
does not change when real GDP changes
all else equal , a large decline in the real interest rate will shift the
investment schedule upward
the level of aggregate expenditures in the private closed economy is determined by the
expenditures of consumers and businesses
refer to the above data the MPS IS
the equilibrium level of GDP in a private closed economy is where
aggregate expenditures equal GDP
in a private closed economy when aggregate expenditures equal GDP
planned investment equals saving
in a private closed economy when aggregate expenditures exceeds GDP
business inventories will fall
if at some level of GDP the economy is experiencing an unintended decrease in inventories
domestic output will increase
if an unintended increase in business inventories occurs
we can expect businesses to lower the level of production
for a private closed economy and unintended decline in inventories suggest that
aggregate expenditures exceed GDP
for a private closed economy aggregate expenditures consist of
when investment remains the same at each level of GDP in a private closed economy , the slope of the aggregate expenditures schedule
equals the MPC
Actual investment is 62 billion at an equilibrium output level is
if unintended increase in business inventories occur we can expect
a decline in GDP and rising unemployment
in a private economy …. investment is equal to saving at all levels of GDP and equilibrium occurs only at the level of GDP where… investment is equal to saving
actual; planned
In the aggregate expenditures model, equilibrium GDP IN A PRIVATE CLOSED ECONOMY IS INDICATED BY
All of the above
in the aggregate expenditures model, technological progress will shift the investment schedule
upward and increase aggregate expenditures.
at equilibrium real GDP in a private closed economy;
aggregate expenditures and real GPD are equal
which of the following statements is correct for a private closed economy
saving equals planned investment only at the equilibrium level of GDP
at the 180 billion equilibrium level of income saving is 38 billion in a private closed economy planned investment must be
38 billion equilibrium level of income saving
saving is always equal to
actual investment
actual investment is
planned investment plus unintended increases inventories
investment and savings are respectively
injections and leakages
imports have the same effect on the current size of GDP
exports have the same effect on the current size of
at the equilibrium GDP for an open economy
net exports may be either positive or negative
other things equal if change in the tastes of consumers causes them to purchase more foreign goods at each level of US GDP
Us GDP will fall
If net exports decline from zero to some negative amount the aggregate expenditures schedule would
shift downward
if net exports are positve
aggregate expenditures are greater at each level of GDP then when net exports are zero or negative
other things equal an increase in economy exports will
increase its domestic aggregate expenditures and therefore increase its equilibrium GDP
If the dollar appreciates relative to foreign currencies we would expect
a country’s net exports to fall
if a nation imposes tariffs and quotas on foreign products the immediate effect will be to
increase domestic output and employment
if the multiplier in an economy is 5, a 20 billion increase in net exports will
increase by 100 billion
if the equilbrium level of GDP in a private open economy is 100 billion and consumption is 700 billion at that level of GDP then
Ig+Cn must equal 300 billion
an exchange rate
is the price at that the currencies of any two nations exchange for one another
if the unitied states wants to increase its net exports it might take steps to
increase the dollar price of foreign currencies
other things equal serious recession in the economies of US trading partners will
depress real output and employment in the US economy
In a mixed economy the equilibrium GDP exists where
other things equal, if 100 billion of government purchases G is added to private spending C+Ig+Xn
in which of the following situation for a mixed economy will the level of GDP expand
when Ig+X+G exceeds Sa+M+T
If a lump -sum income tax of 25 billion is levied and the and the MPS is .20 the
consumption schedule will shirft downward by 20 billion
Suppose the economy is operating at its ful employment noninflationary GDP and the MPC is .75 the federal government now finds that it must increase spending on military goods by 21 billion in response to deterioration in the international political situation to sustain full employment non inflation GDP government must
increase taxes by 28 billion
a 1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP that will 1 decline in taxes because
a portion of a tax cut will be saved
ignoring international trade in a mixed economy aggregate expenditures are comprised of
if APC=.6 and MPC=.7 the immediate impact of an increase in personal taxes of 20 will be to
decrease consumption by 14
when the public sector is added to the aggregate expenditures are model
we add a new leakage in the form of taxes and a new injection in the form of government spending
the level of aggregate expenditures in a mixed open economy is comprised of
in a mixed closed economy
taxes and saving are leak ages while investment and government purchases are injections
an increase in taxes will have a greater effect on the equilibrium GDP
the larger the MPC
which of the following would increase GDP by the greatest amount
a 20 billion increase in government spending
what do investment and government expenditures have in common
both represent injection to the circular flow
taxes represent
a leakage of purchasing power like, savings
suppose government finds it can increase the equilibrium real GDP 45 billion by increasing government purchases by 18 billion
MPS in the economy is .4
in the aggregate expenditures model, a reduction in taxes may
increase saving
in the agregate expenditures model an in increase in government spending may
increase output and employment
if a 20 billion increase in government expenditures increases equilibrium GDP by 50 billion then
the MPC for this economy is .6
a lump sum tax mean that
the same amount of tax revenue is collected at each level of GDP
equal increase in government purchases and taxes will
increase the equilibrium GDP and the size of that increase is independent of the size of the MPC
an inflationary expenditure gap is the amount by which
aggregate expenditures exceed the full employment level of GDP
cyclical unemployment in the US is essentially the consequence of
a deficient level of aggregate expenditures
the aggregate demand curve
shows the amount of real output that will be purchased at each possible price level
the interest rate effect suggest that
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending
the real balances effect indicates that
a higher price level will decrease the real value of many financial assets and therefore reduce spending
the foreign purchases effect suggest that an increase in the US price level relative to other countires will
increase us imports and decrease us exports
the real balances interest rate and foreign purchases effects all help explain
why the aggregate demand curve is down sloping
the factors that affect the amounts that consumers businesses governemtn and foreigners wish to purchase at each price level are the
determinants of aggregate demand
Other things equal if the national incomes of the major trading partners of the US were to rise the US
aggregate demand curve would shift to the right
other things equal a decrease in the real interest rate will
expand investment and shift AD curve to the right
a decline in investment will shift the AD curve
left by a multiple of the change in investment
and economy s aggregate demand curve shifts leftward or rightward by more than changes in initial spending because
multiplier effect
the economy’s long run AS curve assumes that wages and other resources prices
eventually rise and fall to match upward or downward changes in the price level
the aggregate supply curbe (short run)
is steeper above the full employment output than below it
monopoly or market power is the ability of a firm to
set its price
other things equal a reduction in personal and business taxes can be expected to
increase both aggregate demand and aggregate supply
prices and wages ten to be
flexible upward but inflexible downward

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