Ch.6 Aggregate Expenditures

Question 1

Autonomous / Induced

Which is/isn’t dependent on Income?

Answer 1

Autonomous = independent

Induced = Dependent

Question 2

The Ratio of
∆ in Consumption
to
∆ in Income

Answer 2

MPC
Marginal Propensity to Consume

. ∆ Consumption
MPC = ————————
. ∆ Income

Question 3

In the models of
1) Closed private economy
2) Complete Exp. Model

Relations btw MPC / MPS / MTR
∵ ?

Answer 3

1) Closed private economy
MPC+MPS = 1
∵ Y = C + S
MTR doesn’t exist ∵No Gov

2) Complete Exp. Model
MPC+MPS+MTR = 1
∵ Y = C + S + T

Question 4

The Income @which
has Equal Value of
Production &
Aggr. Expenditures

Answer 4

Expenditure Equilibrium

Y = AE

Injections = Leakages
I+G+X=T+Im+S
nm
No Unplanned Investment

Question 5

Unintended Investments
by firms to
Buildup or Rundown
Inventories

& formula

Answer 5

Unplanned Investment

= Y - AE

Question 6

∆ Inventory when
Y > AE &
Y < AE

Answer 6

Y > AE ⇒ Inventory↑

Y < AE ⇒ Inventory↓

Question 7

$1 Increase in
Autonomous Spending
leads to
more than $1 Increase
in Income & AE

& formula

Answer 7

Multiplier

. ∆ Income
Multiplier = ——————
. ∆Auto. Expenditures

. 1 1
= —— = ———
. MLR (1-MPE)

Question 8

Relations btw
MPC
MPS

in closed private economy

Answer 8

MPC+MPS = 1
∵ Y = C + S

Question 9

Relations btw
MPE
MLR

Answer 9

MPE+MLR = 1
∵ Y = Expenditure + Leakage

Question 10

MPE & MLR

formulas

Answer 10

. ∆Aggr. Expenditure
MPE = —————————
. ∆ Income

. ∆ Leakage
MLR = ——————
. ∆ Income

Question 11

Disposable Income
Yd = ?

Answer 11

Yd = Y - T
= C + S

Question 12

Budget Balance
= ?
meanings of
>0 / =0 / <0

Answer 12

Budget Balance
= T - G

when
>0 ⇒Budget Surplus
=0 ⇒Balanced Budget
<0 ⇒Budget Deficit

Question 13

Relations btw
MPE
MPC
MPM

Answer 13

MPE = MPC - MPM

∵ Consumption incl. Import
& GDP excl. Import

Question 14

MP__ = ?

M__R = ?

Answer 14

Marginal Propensity to ___
Expend/ Consume/ Save/ iMport/

Marginal ___ Rate
Leakage/ Tax/