Macroecon chapter 6

Question 1

No government leads to

Answer 1

No international trade

Question 2

Difference between actual and desired expenditure

Answer 2

Actual: What’s purchased
Desired: What we would like to purchase

Question 3

Desired aggregate expenditure formula

Answer 3

AE = C + I + G + (X - iM)

Question 4

Disposable income formula

Answer 4

Yd = Household income(Y) - Taxes(T)

Question 5

Taxe formula

Answer 5

T = taxe rate(t) x Y

Question 6

Saving formula

Answer 6

S = Yd - C

Question 7

C is dependent of which factor? (4)

Answer 7

• Yi (income)
• W (wealth)
• i (interest rate)
• F (Expectation about future)

Question 8

Impact of income on C

Answer 8

Positive

Question 9

Impact of wealth on C

Answer 9

Positive

Question 10

Impact of interest rate on C

Answer 10

Negative

Question 11

Impact of future expectation on C

Answer 11

Positive

Question 12

If S < 0…

Answer 12

C > Yd

Question 13

If S > 0…

Answer 13

C < Yd

Question 14

Average propensity to consume formula

Answer 14

APC = (C/Yd)

Question 15

Component of AE (2)

Answer 15

• Autonomous
• Induced

Question 16

Autonomous components (4)

Answer 16

• Consumers
• Interest
• Government spending
• Export

Question 17

Induced component (2)

Answer 17

• cY
• marginal propensity to import (mY)

Question 18

Average propensity to spend formula

Answer 18

APS = (S/Yd)

Question 19

Marginal propensity to consume formula

Answer 19

MPC = (ΔC/ΔYd)

Question 20

Marginal propensity to spend formula

Answer 20

MPS = (ΔS/ΔYd)

Question 21

APC and APS relation

Answer 21

APC + APS = 1`

Question 22

MPC and MPS relation

Answer 22

MPC + MPS = 1

Question 23

Difference between average and marginal propensity to consume

Answer 23

MPC is constant
APC is not constant

Question 24

mY influence on C

Answer 24

Positive

Question 25

mY influence on S

Answer 25

Negative

Question 26

What is the most volatile component of GDP

Answer 26

Investment

Question 27

Why is Investment such a volatile component of GDP

Answer 27

Associated my aggregate economic fluctuation

Question 28

Investment is a function of… (3)

Answer 28

• Real interest rate (r)
• Level of sales
• Business confidence

Question 29

Impact of sales on investment

Answer 29

Positive

Question 30

Impact of business confidence on invesment

Answer 30

Positive

Question 31

Why is a I graph on the horizontal line?

Answer 31

I is independent of Y

Question 32

AE formula in the absence of govnt and int. trade

Answer 32

AE = C + I

Question 33

Slope of AE in simple economy

Answer 33

MPC

Question 34

Vertical intercept of AE graph

Answer 34

A0 = C0 + I0

Question 35

Where is the equilibrium on a graph

Answer 35

Point that intercepts the AE curve and the 45° line

Question 36

Equilibrium

Answer 36

Actual expenditure is equal to desired expenditure

Question 37

Equilibrium formula

Answer 37

Y = (C0 + I0) / (1 - mpc)

Question 38

If Y < Y0

Answer 38

Output will rise
Inventory fall

Question 39

If Y > Y0

Answer 39

Output will fall
Inventory rise

Question 40

Shifts in AE function (2)

Answer 40

• Parallel shift
• Change in slope

Question 41

Simple multiplier formula

Answer 41

1 / (1 - z)

Question 42

What happens if any item of A0 change

Answer 42

AE curve will shift parallel up or down (they are positively related)

Question 43

What happens of z change (change in mpc)

Answer 43

AE curve will pivot up or down (they are positively related)

Question 44

What does a large simple multiplier do in a graph

Answer 44

Creates a steeper AE function

Question 45

Factor influencing the multiplier (2)

Answer 45

• MPC
• Expectation about self-fulfilling prophecy