Keynesian Model Flashcards
Disposable income is best defined as
income after teaxes have been paid and transfers received
The largest component of aggregate expenditure is
consumption spending
Which of the following would be most likely to increase consumption spending?
A decrease in the price level
Which of the following would not increase autonomous consumption spending?
Increased disposable income
Which of the following is the definition of autonomous consumption spending
The part of consumption spending that is independent of disposable income
The marginal propensity to consume (MPC) is
the change in consumption divided by the change in disposable income
If the marginal propensity to consume is .5 and disposable income increases by $10,000, by how much will consumption spending increase?
5,000
In the short-run macro model, what is the relationship between income and investment spending?
There is no relationship between the two variables
Aggregate expenditure is the sum of
Spending by households, government, firms and foreigners on final goods and services
If income increases by $10,000, government purchases are fixed at $1,000, investment spending is fixed at $2,000, net exports are fixed at $500, and the MPC is .70, by how much does aggregate expenditure increase?
$7,000
Which of the following is an equilibrium condition of the short-run macro model?
Aggregate expenditure equals output
In the short-run model, if GDP is 5 Trillion and the aggregate expenditure is 4 trillion
GDP will fall because firms will cut production
In the short run macro model, the change in inventories will
Equal output minus aggregate expenditures
If the MPC is .75 and investment spending increases by 200 billion, by how much will the equilibrium output increase
800 Billion
If income increases by $10,000, government purchases are fixed at $1,000, investment spending is fixed at $2,000, net exports are fixed at $500, and the marginal propensity to consume is 0.70, by how much does aggregate expenditure increase?
$7,000
