Chapter 6

Question 1

What is desired aggerate expenditure and its symbol

Answer 1

(AE)
what people decide to spend out of the resources they actually have

AE = C + I + Q + (X-IM)

Question 2

Autonomous Expenditure

Answer 2

Compondnts of AE that do not change when national income changes

Question 3

Induced expendature

Answer 3

Components of Aw that change when national income changes

Question 4

What are the assumptions of simplest short run macro model

Answer 4

1. No trande (closed economy- no NX)
2. No Goverment (No T no G)
3. Price is constant

Question 5

Disposable income and symbol

Answer 5

(YD)
Household income - taxes
YD = Y - T
T=0 so Y=YD

Question 6

Savings symbol and equation

Answer 6

(S)
S=yD - C

Question 7

The consumption function

Answer 7

The relatioship between desired consumption and all the factors that determine it

Question 8

What are the factors that influence desired consumption

Answer 8

1. Disposable income YD
2. Wealth (assets - debts)
3. Intrest rates
4. Expectation about the future

Question 9

How do you caculate APC

Answer 9

C / YD = APC
average propensity to consume

Question 10

How do you calculate MPC

Answer 10

deltaC / delta YD
marginal propensity to consume
MPC is constant and = to slope

Question 11

What are the parts of the consumtion function equation

Answer 11

C = 30(autonomous part of C- vertical intercept) + 0.8Y (induced part of c -slope of function)

Question 12

APS

Answer 12

Average propensity to save
=S / YD

Question 13

MPS

Answer 13

how much additional income households have to save

Question 14

Change in intrest rate

Answer 14

C goes up
S goes down

Question 15

Change in expectations

Answer 15

C goes up
S goes down

Question 16

Determinants of desired investment expenditure

Answer 16

1. Real intrest rate - i goes down
2. Change in sales (Up)- I goes up
   3 Business confidence

Question 17

The aggerate expendature function

Answer 17

AE= C + I
The relationship between desired aggerate expenditure and actual national income

Question 18

Marginal propensity to spend

Answer 18

slope of AE function
z=mcp= delta AE/ delta Y

Question 19

Equlibrium condition for simple macro model

Answer 19

AE = Y

Question 20

Multplyer

Answer 20

delta Y / delta A

Question 21

The simple multplier

Answer 21

1 / 1-z