Chapter 11 Flashcards
In the Keynesian cross model, the 45-degree diagonal represents the:
set of points where output is equal to demand.
In a simple demand-side model with only consumers and firms, each of
which demands a fixed amount of goods, equilibrium occurs where the C +
I line:
crosses the 45-degree line.
If the consumption function is C = 50 + 0.75y, then the marginal
propensity to consume is:
0.75
If the consumption function is C = 50 + 0.75y, then the level of
autonomous consumption is:
50.
The slope of the consumption function is equal to:
the marginal propensity to consume
A change in the MPC can occur as a result of:
b. consumers’ perceptions of changes in their incomes.
c. changes in tax rates.
Let C = 100 + 0.6y and I = 150. Then the equilibrium level of income,
y*, is:
625
Let C = 100 + 0.6y and I = 150. At the equilibrium level of income, y*,
the level of savings is:
150
In the simple Keynesian cross model with no government or foreign
sectors, the value of the multiplier is defined as:
1/(1-MPC)
Let C = 25 + 0.75y and I = 50. Assume no government or foreign sectors.
If investment increases by 150, then the value of the multiplier is:
4.
The multiplier ______ as the marginal propensity to consume increases
increases
The multiplier ______ as autonomous consumption increases.
is constant
C = 50 + 0.8(y - T) I = 200 G = 150 T = 100 What is the equilibrium level of output
1600
C = 50 + 0.8(y - T) I = 200 G = 150 T = 100 What is the value of the government spending multiplier?
5
C = 50 + 0.8(y - T) I = 200 G = 150 T = 100 If taxes decrease by 50, then the change in output is
200
Suppose the marginal propensity to consume for the United States is 0.7.
If policy makers wish to increase GDP by $50 billion, how much does
government spending have to increase to meet this target?
$15 billion
Which of the following is an example of an automatic stabilizer?
a. Congress authorizes spending increases during a recession
b. Congress increases the tax rate during an expansion
c. more unemployment benefits are paid during a recession
d. welfare payments decrease during a recession
e. more taxes are paid during a recession
C The ¯rst two are not automatic, that is, they occur as the result of
some government policy. The latter two would not be stabilizing
C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y What is the marginal propensity to save
0.25
It is still 1 - b. It doesn’t matter whether people are spending on
domestic or foreign goods, the MPS is still the proportion of each dollar not
spent on consumption.
C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y A decrease in the level of imports \_\_\_\_\_\_\_\_ the demand for goods and service produced in the U.S.
increases
People substitute domestic goods for foreign goods
C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y What is the value of the government spending multiplier?
2.86
C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y What is the equilibrium level of output, y*?
1000
C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y At the equilibrium level of output, y*, what is the level of imports
Imports are my* = 0.1£1000 = 100.
C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y If exports increase by 100 (X=175), what is the new equilibrium level of output?
1286
C = 100 + 0.75(y-T) I = 100 G = 150 T = 100 X = 75 M = 0.10y If the marginal propensity to import increases to 0.2 (MPM=0.20), what is the new equilibrium level of output?
777.78
Equilibrium output
(autonomous consumption + investment)(1-MPC)
y*=(Ca+I)(1-b)
