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Exam 11: The Aggregate Expenditures Model

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Question 1

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Assume that in a private closed economy, consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus,

A) saving is $10 billion.
B) unplanned decreases in inventories of $10 billion will occur.
C) the MPC is 0.80.
D) unplanned increases in inventories of $10 billion will occur.

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Question 2

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$\begin{array}{|c|c|c|c|c|c|}\hline\begin{array}{c}\text { Domestic Output } \\(G D P=D I) \end{array} & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, } \\\text { Closed Economy }\end{array} & \text { Exports } & \text { Imports } & \text { Net Exports } & \begin{array}{c}\text { Aggregate } \\\text { Expenditures, Open } \\\text { Economy }\end{array} \\\hline \$ 200 & \$ 230 & \$ 30 & \$ 20 & \$- &\$- \\\hline 250 & 270 & 30 & 20 & -&- \\\hline 300 & 310 & 30 & 20 & -& - \\\hline 350 & 350 & 30 & 20 & -& - \\\hline 400 & 390 & 30 & 20 & -& - \\\hline 450 & 430 & 30 & 20 & -& - \\\hline 500 & 470 & 30 & 20 & -& - \\\hline\end{array}$ Complete the accompanying table and answer the question based on the resulting data. All ?gures are in billions of dollars. If the economy was closed to international trade, the equilibrium GDP and the Multiplier would be

A) $300 and 5.
B) $350 and 4.
C) $400 and 4.
D) $350 and 5.

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Question 3

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In a private closed economy, _____ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where _____ investment is equal to saving.

Other things equal, the multiplier effect associated with a change in government spending is

An exchange rate

In a mixed open economy, if aggregate expenditures exceed GDP,

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

Refer to the diagram for a private closed economy. In this economy, investment

Refer to the diagram. The change in aggregate expenditures as shown from $\left( \mathrm { C } + I _ { g } + X _ { n 2 } \right)$ to $\left( C + I _ { g } + X _ { n 1 } \right)$ might be caused by

Other things equal, a serious recession in the economies of U.S. trading partners will

Refer to the diagram for a private closed economy. The equilibrium level of GDP is

Refer to the diagram for a private closed economy. In this economy, aggregate expenditures

Imports have the same effect on the current size of GDP as

$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Gross Domestic Product } & \text { Consumption } \\\hline \$ 100 & \$ 100 \\\hline 200 & 160 \\\hline 300 & 220 \\\hline 400 & 280 \\\hline 500 & 340 \\\hline 600 & 440 \\\hline\end{array}\\\\\begin{array} { | c | c | } \hline \text { Expected Rate of Return } & \text { Amount of Investment } \\\hline 15 \% & \$ 0 \\\hline 12 & 40 \\\hline 9 & 80 \\\hline 6 & 120 \\\hline 3 & 160 \\\hline 0 & 200 \\\hline\end{array}\end{array}$ Refer to the tables of information for a private closed economy. The multiplier in this economy is

Which of the following statements is correct for a private closed economy?

Refer to the diagram. If net exports are $X _ { n 2 }$ , the GDP in the open economy will exceed GDP in the closed economy by

Refer to the diagram, which applies to a private closed economy. If aggregate expenditures are C + Ig2, the amount of saving at income level J is

At equilibrium real GDP in a private closed economy,

$\begin{array}{l}\begin{array} { | c | c | } \hline \text { Gross Domestic Product } & \text { Consumption } \\\hline \$ 100 & \$ 120 \\\hline 200 & 180 \\\hline 300 & 240 \\\hline 400 & 300 \\\hline 500 & 360 \\\hline\end{array}\\\\\begin{array} { | c | c | } \hline \text { Expected Rate of Return } & \text { Amount of Investment } \\\hline 25 \% & \$ 0 \\\hline 20 & 20 \\\hline 15 & 40 \\\hline 10 & 60 \\\hline 5 & 80 \\\hline\end{array}\end{array}$ Refer to the tables of information for a private closed economy. If the real interest rate is 10 percent, the equilibrium GDP will be

Ig = 80 S = −80 + 0.4Y (Advanced analysis) The equations refer to a private closed economy, where Ig is gross investment, S Is saving, and Y is gross domestic product (GDP) . In equilibrium, saving will be