# Chapter 12 Homework

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question
The aggregate expenditure model can be written in terms of four spending categories. Which equation shows the relationship between aggregate expenditure and the four spending​ categories? A. AE​ = C-I-G-NX B. AE​ = C​ + I- G- NX C. AE​ = C​ + I​ + G- NX D. AE​ = C​ + I​ + G​ + NX
D. Aggregate expenditure model A macroeconomic model that focuses on the relationship between total spending and real​ GDP, assuming that the price level is constant. The key idea is that in any particular​ year, the level of GDP is determined mainly by the level of aggregate​ expenditure: Aggregate expenditure​ = Consumption​ + Planned investment​ + Government purchases​ + Net​ exports, ​where: Consumption​ (C): Spending by households on goods and services. Planned investment​ (I): Spending by firms on capital goods and spending by households on new homes. Government purchases​ (G): Spending by​ local, state, and federal governments on goods and services. Net exports​ (NX):​ (Exportsminus ​Imports). AE​ = C​ + I​ + G​ + NX
question
What is the effect on​ inventories, GDP, and employment when aggregate expenditure​ (total spending) exceeds​ GDP? A. Inventories​ decrease, GDP​ decreases, and employment increases. B. Inventories​ increase, GDP​ increases, and employment decreases. C. Inventories​ decrease, GDP​ increases, and employment increases. D. Inventories​ increase, GDP​ increases, and employment increases.
https://imgur.com/a/waojzRO C.
question
We say that the economy as a whole is in macroeconomic equilibrium if A. total spending equals GDP. B. aggregate expenditure equals total production. C. total spending equals total production. D. aggregate expenditure equals GDP. E. all of the above.
E. For the economy as a​ whole, macroeconomic equilibrium occurs where total​ spending, or aggregate​ expenditure, equals total​ production, or​ GDP: Aggregate Expenditure​ = GDP. To​ simplify, we assume that the economy is not growing. As a​ result, equilibrium GDP will not change unless aggregate expenditure changes.
question
In the aggregate expenditure​ model, when is planned investment greater than actual​ investment? A. Planned investment always equals actual investement in the aggregate expenditure model. B. When there is an unplanned increase in inventories. C. When there is no unplanned change in inventories. D. When there is an unplanned decrease in inventories.
D. Recall that changes in inventories are included in investment​ spending, along with spending on capital. We assume that the amount that businesses plan to spend on capital equals the amount they actually spend on capital. The amount businesses plan to spend on​ inventories, however, may be different from the amount they actually spend. Actual investment will be greater than planned investment when there is an unplanned increase in spending on inventories. Actual investment will be less than planned investment when there is an unplanned decrease in spending on inventories.​ Therefore, actual investment equals planned investment when there is no unplanned change in inventories.
question
We can use the diagram to compare movements in real consumption between 1979 and 2017. Which of the following statements is​ true? A. Consumption during the recession in 2001 was higher than consumption during the recessions of​ 2007-2009. B. Consumption is subject to large fluctuations. C. Consumption fell after the recession of​ 1980-1982. D. Consumption follows a​ smooth, upward​ trend, interrupted only infrequently by brief recessions.
D. https://imgur.com/a/oHFIoWo
question
We can use the diagram to the right to compare movements in real government purchases between 1979 and 2006. Use the diagram to help identify which of the following statements are true. Click anywhere in the diagram and then choose a year to plot to identify levels of real consumption at a particular date. ​Note: The values are seasonally adjusted at an annual rate. A. Government purchases grew steadily for most of the period​ shown, with the exception of the​ mid-1990s. B. Government purchases grew steadily for most of the period​ shown, with the exception of the early 2000s. C. Government purchases grew steadily for most of the period​ shown, with the exception of the​ early-1980s. D. Government purchases grew steadily for most of the period​ shown, without any notable exception.
A. https://imgur.com/a/d8hWFDX Concern over the gorwth of federal government spending in relation to tax receipts led Congress and Presidents George H. W. Bush and Bill Clinton to sign a series of spending reductions in the​ mid-1990s.
question
We can use the diagram to the right to compare movements in real net exports between 1979 and 2006. Use the diagram to help identify which of the following statements are true. Click anywhere in the diagram and then choose a year to plot to identify levels of real consumption at a particular date. ​Note: The values are seasonally adjusted at an annual rate. A. The United States has imported more goods and services than it exported during most of the years shown. B. The United States has imported less goods and services than it exported during most of the years shown. C. The United States has never imported less goods and services than it exported during the years shown. D. The United States has always imported less goods and services than it exported during the years shown.
A. https://imgur.com/a/KEyAdWT Net exports equal exports minus imports. During nearly all of the years​ shown, imports have been greater than exports and so net exports have been negative. The only exception is during the recessions of​ 1980-1982, when net exports was greater than zero.
question
Complete the following table to indicate what effect a decrease in each of the consumption components will have on consumption.
https://imgur.com/a/pUOHwyC
question
Which of the following is NOT included in the calculation of total government​ purchases? A. The salaries of high school teachers paid for by state government B. A local government installs a new stop sign C. A new interstate highway purchased by the federal goverment D. Unemployment insurance benefits paid for by the federal government
D. Government​ purchases: Total government purchases include spending on goods and services by all​ federal, state, and local governments. Government purchases do not include transfer​ payments, such as Social Security payments to qualified individuals. Recall that transfer payments are payments from the government to households for which a good or service is not exchanged.
question
The relationship between the marginal propensity to consume​ (MPC) and the marginal propensity to save​ (MPS) can best be described as A. MPC​ + MPS​ = 1. B. MPC​ = 1- MPS. C. MPS​ = 1- MPC. D. All of the above.
D. https://imgur.com/a/NLikCJL
question
Complete the following table.
https://imgur.com/a/fdHVVyl
question
Which of the following will increase planned investment spending on the part of​ firms? A. Increased optimism about future demand for its product B. A lower real interest rate C. Increases in the corporate income tax D. All of the above E. A and B only
E. The four most important variables that determine the level of investment​ are: 1. Expectations of future profitability. Since investment goods are​ long-lived, firms are unlikely to build new factories or buy new equipment unless it is optimistic that demand for its product will remain strong for an extended period. The optimism or pessimism of firms is an important determinant of investment spending. 2. Interest rate. Since much investment spending is​ financed, the cost of borrowing money​ (the interest​ rate) is crucial. A higher real interest rate reduces investment​ spending, and a lower real interest rate increases it. 3. Taxes. A reduction in the corporate income tax increases the profitability of investment​ spending, and an increase in the corporate income tax reduces the profitability of investment spending. 4. Cash flow. The cash flow is the difference between the cash revenues received by a firm and the cash spending by the firm.
question
Consider the figure to the right. This economy is in macroeconomic equilibrium at what level of real​ GDP? ​\$ __ billion. What is the level of planned investment? \$___
1. 80 billion. Macroeconomic​ equilibrium: Occurs where the aggregate expenditure line​ (AE) crosses the 45degrees line. https://imgur.com/a/T6eacWh 2. The difference between line​ (C) and line ​(C+​I), for​ example, is the level of planned investment when the economy is in macroeconomic equilibrium. C moving up to c+I = 10 million. 10m is planned investment.
question
Complete the table. The equilibrium level of real GDP is \$__
https://imgur.com/a/tVfl3UG The equilibrium level of real GDP is ​\$11,000. This is where unplanned change in inventories is 0. RGDP = AE Planned Aggregate expenditure(AE) = C+I+G+NX. Unplanned Changes in Inventories​ = Real GDP(Y)-Planned Aggregate Expenditure​ (AE) Equilibrium real GDP occurs where real GDP equals planned aggregate expenditure. This is also the point at which unplanned changes in inventories equal zero.
question
1. When potential real GDP is equal to​ 70, this economy is in __ 2. The amount of the shortfall in planned aggregate expenditure is equal to A. the vertical distance between AE and the 45degrees line at the level of potential real GDP. B. the amount of potential real GDP. C. the horizontal distance between potential real GDP and actual real GDP. D. the amount of actual real GDP.
https://imgur.com/a/ZZu7GVM 1. Recession. 2. A. When aggregate expenditure​ (AE) intersects the 45degrees line at a level of GDP below potential real​ GDP, the economy is in a recession. The figure shows that potential real GDP is​ \$70 trillion, but because planned expenditure is too​ low, the equilibrium level of GDP is only​ \$60 trillion​ (where the AE line intersects the 45degrees line). As a​ result, some firms are operating below their normal capacity and unemployment will be above the natural rate of unemployment. The shortfall in planned aggregate expenditure is the vertical distance between the AE line and the 45degrees line at the level of potential real GDP.
question
Indicate which of the following is correct about the multiplier effect. A. The multiplier ignores the effect on real GDP of​ imports, inflation, and interest rates. B. The larger the​ MPC, the more additional consumption that occurs. C. A decrease in autonomous spending decreases real GDP by a multiple of the change. D. All of the above.
D. https://imgur.com/a/B9Teoxc
question
What is the effect on real GDP of a ​\$100 billion change in planned investment if the MPC is 0.75 ​?
https://imgur.com/a/2MUGlI5 x(change in planned investment)(1/1-mpc) For second attempt at 100b, the answer is 400b.
question
In the figure at​ right, a​ \$20 trillion increase in planned investment increased the AE line from AE 1 to AE 2 . ​However, real GDP increased by​ \$40 trillion.​ Why? A. The multiplier effect. B. The investment effect. C. The government purchases effect. D. The expenditure effect.
A. https://imgur.com/a/NZWst3o
question
The general algebraic version of the aggregate expenditure model can be written as​ follows, where letters with​ "bars" represent fixed or autonomous values. Autonomous expenditure An expenditure that does not depend on the level of GDP. Aggregate expenditure model A macroeconomic model that focuses on the relationship between total spending and real​ GDP, assuming that the price level is constant. If you think of the aggregate expenditure function as a line on the​ 45°-line diagram, the intercept would be If you think of the aggregate expenditure function as a line on the​ 45°-line diagram, the slope would be