aggregate expenditure

Question 1

aggregate expenditure

Answer 1

total spending in the economy

Question 2

aggregate expenditure model

Answer 2

short-run relationship between total spending and real gdp, assuming that price level is constant

Question 3

difference between AE and GDP

Answer 3

uses planned investment rather than actual

Question 4

planned vs actual investment

Answer 4

planned: doesn’t include the build-up of inventories
planned = actual - unplanned change in inventories

Question 5

macroeconomic equilibrium

Answer 5

spending = output produced (AE = GDP)
planned investment = actual investment

Question 6

relationship between AE and GDP (3)

Answer 6

AE = GDP -> inventories are unchanged = equilibrium
AE < GDP -> inventories rose = GDP and employment decrease
AE > GDP -> inventories fell = GDP and employment rises

Question 7

determinants of consumption

Answer 7

disposable income
household wealth
expected future income
price level
interest rate

Question 8

net exports, investment and gov spending

Answer 8

constant

Question 9

consumption function

Answer 9

relationship between consumption spending and disposable income
C + MPC(Y)

Question 10

marginal propensity to consume

Answer 10

amount that is spent with additional income
(slope of consumption function)

Question 11

estimating MPC

Answer 11

change in consumption / change in disposable income

Question 12

national income

Answer 12

= disposable income (consumption +saving) + net taxes
= GDP

Question 13

marginal propensity to save

Answer 13

portion of saving with additional income

Question 14

MPC and MPS

Answer 14

1 = MPC + MPS

Question 15

determinants of planned investment

Answer 15

expectations of future profitability
the interest rate
taxes
cash flow

Question 16

net exports are affected by

Answer 16

price level in US vs price level in other countries
US growth rate vs growth rate in other countries
US dollar exchange rate

Question 17

determinant of net exports: price level (2)

Answer 17

PL rises faster than foreign PL: net exports decrease (e - M)
PL rises slower than foreign PL: net exports increase (E - m)

Question 18

determinant of net exports: gdp growth (2)

Answer 18

gdp grows faster than foreign gdp: nx decrease (e - M)
gdp grows slower than foreign gdp: nx increase (E - m)

Question 19

determinant of net exports: dollar value

Answer 19

dollar rises relative to other currencies: nx decrease (e - M)
dollar falls relative to other currencies: nx increase (E - m)

Question 20

AE and Consumption

Answer 20

resulting consumption function tells us how much consumers will spend when they have a particular income (real gdp)

Question 21

where we would like the macro equilibrium to occur

Answer 21

at potential gdp growth

Question 22

autonomous expenditures

Answer 22

I, G and NX
expenditures not dependent on the level of gdp

Question 23

multiplier effect (2)

Answer 23

real gdp increases by more than the change in autonomous expenditure
change in real gdp / change in investment spending = 1 / 1- MPC
(each $1 dollar increase in planned investment increases equilibrium by $?)

Question 24

total change in equilibrium real GDP

Answer 24

= MPC ^ nb of rounds (x 100 billion)

Question 25

solving general aggregate expenditure equations

Answer 25

equilibrium gdp expenditure x multiplier