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Exam 29: The Aggregate Expenditure Model

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Question 21

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The formula for the marginal propensity to consume is:

A) planned consumption spending divided by disposable income.
B) disposable income minus saving.
C) the change in planned consumption spending divided by the change in disposable income.
D) disposable income minus government purchases, investment, and net exports.

E) C) and D)
F) None of the above

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Question 22

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Describe the role of the 45-degree angle line in the aggregate expenditures model. What does it measure, and how does it help identify equilibrium? When does high unemployment occur?

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The 45-degree angle line consists of all...

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Question 23

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Which of the following is NOT part of the Keynesian perspective?

The _____ economic model demonstrates the short-run relationship between aggregate expenditures and real GDP, assuming that the price level is constant.

Which of the following is NOT true of an aggregate demand and aggregate supply graph that is drawn to represent the Keynesian perspective?

(Table 1: Economic Data for Macroland) Table 1 shows economic data for Macroland. Assume that Macroland is not involved in any international trade. Use the data in Table 1 to determine the marginal propensity to consume in Macroland. $\begin{array}{c}\hline \text { Table 1. Economic Data for Macroland }\\\begin{array}{|l|l|l|l|l|}\hline {\text { Income }} & {\begin{array}{c}\text { Consumption } \\\text { Spending }\end{array}} & \begin{array}{c}\text { Government } \\\text { Spending }\end{array} & \begin{array}{c}\text { Investment } \\\text { Spending }\end{array} & \begin{array}{c}\text { Aggregate } \\\text { Expenditures }\end{array} \\\hline \$ 0 & \$ 50 \text { billion } & \$ 100 \text { billion } & \$ 50 \text { billion } & \$ 200 \text { billion } \\\hline \$ 100 \text { billion } & \$ 120 \text { billion } & \$ 100 \text { billion } & \$ 50 \text { billion } & \$ 270 \text { billion } \\\hline \$ 200 \text { billion } & \$ 190 \text { billion } & \$ 100 \text { billion } & \$ 50 \text { billion } & \$ 340 \text { billion } \\\hline \$ 300 \text { billion } & \$ 260 \text { billion } & \$ 100 \text { billion } & \$ 50 \text { billion } & \$ 410 \text { billion }\\\hline\end{array}\end{array}$

A key difference in Keynes's perspective compared to the classical view is that Keynes:

In the aggregate expenditure model, the points on the 45-degree line represent all points where:

A key difference between the classical perspective and the Keynesian aggregate expenditure model is that the classical perspective believes that ______ and the Keynesian perspective does not.

Describe how to identify the marginal propensity to consume on a graph of the aggregate expenditures function.

Which of the following is NOT consistent with the paradox of thrift?

If the consumption function is C = 25 + .80 (disposable income) , what is the expenditure multiplier for the full potential expenditure multiplier effect?

If the consumption function is C = 50 + .60 (disposable income) , what is the expenditure multiplier for the full potential expenditure multiplier effect?

In the aggregate expenditures model, an economy will be producing at the:

When income is $100 billion, consumption spending is $75 billion. When income is $120 billion, consumption spending is $89 billion. What is the marginal propensity to consume?

What is the role of unplanned investment in the aggregate expenditures model? When does it occur, and what does it trigger?

When expenditures exceed income, then business inventories will:

In the aggregate expenditures model, which of the following would cause the aggregate expenditures curve to decrease?

Keynes believed that increased saving:

According to the aggregate expenditures model, an increase in the aggregate expenditures curve for an economy will lead to: