ECF1200 Lecture Notes - Lecture 6: Macroeconomic Model, Aggregate Demand, Macroeconomics

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rosebadger52

18 Oct 2018

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Gdp: understand the relationship between the aggregate demand curve and aggregate expenditure. Ae = c + i + g + nx. A(cid:374) i(cid:373)porta(cid:374)t disti(cid:374)(cid:272)tio(cid:374) differe(cid:374)(cid:272)e (cid:271)et(cid:449)ee(cid:374) pla(cid:374)(cid:374)ed i(cid:374)(cid:448)est(cid:373)e(cid:374)t a(cid:374)d a(cid:272)tual i(cid:374)(cid:448)est(cid:373)e(cid:374)t. Inventories: goods that have been produced but not yet sold: note that in the ae model, it is planned investment spending rather than actual investment spending, eg. In microeconomics, equilibrium occurs when demand for a product equals supply of that product. I. e. , supply of apples = demand for apples. This will note change unless the demand for apples or the supply of apples change: similarly, in macroeconomics, equilibrium occurs when the aggregate expenditure equals total production (or gdp). Aggregate expenditure (ae) = gdp: but, e(cid:395)uili(cid:271)(cid:396)iu(cid:373) does(cid:374)"t hold all the ti(cid:373)e! So(cid:373)eti(cid:373)es qs>qd (cid:894)a(cid:374)d (cid:448)i(cid:272)e-versa: same applies to marco-equilibrium! Ae>gdp that is, total amount of spending is greater than total amount of production. In this case, businesses will sell more g+s then they had expected.

Related Questions

1. Describe the marginal propensity to consume and show how it is computed.

2. Discuss how spending and output influences equilibrium in a simple model where aggregate expenditure = consumption.

3. Describe how unplanned inventory can influence equilibrium in the model where AE=(C+I+G+(X-M))

4. Briefly describe the expenditure multiplier and state how it is computed. How is it different from the Tax multiplier?

lavenderhorse979

Question 1

Which of the following describes the relationship between the change in inventories and aggregate expenditure?

A.	Aggregate expenditure equals the change in inventories minus GDP.
B.	The change in inventories equals GDP divided by aggregate expenditures.
C.	Aggregate expenditures equals GDP divided by the change in inventories.
D.	Aggregate expenditures equals GDP minus the change in inventories.
E.	The change in inventories equals GDP multiplied by aggregate expenditure.

1 points

Question 2

Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion. Which of the following is true?

A.	Disposable income and consumption fall by $10 billion
B.	Disposable income and consumption rise by $10 billion
C.	Disposable income rises by $10 billion and consumption rises by $8 billion
D.	Disposable income falls by $10 billion and consumption falls by $8 billion
E.	Disposable income rises by $10 billion and consumption falls by $8 billion

1 points

Question 3

If aggregate expenditure at a particular level of income is less than output,

A.	output will increase
B.	output will decrease
C.	output will remain the same
D.	output will rise slightly and then level off
E.	we cannot determine what will happen to output

1 points

Question 4

The consumption function

A.	illustrates the relationship between real disposable income and real consumption spending
B.	illustrates the relationship between the price level and real consumption spending
C.	is the relationship between productivity and real consumption spending
D.	shows how real consumption increases when real disposable income decreases
E.	illustrates the relationship between real consumption spending and employment

1 points

Question 5

The focus of the short-run macro model is on the role of

A.	spending in explaining economic fluctuations
B.	labor in explaining economic fluctuations
C.	financial markets in explaining economic fluctuations
D.	output in explaining economic fluctuations
E.	resources in explaining economic fluctuations.

1 points

Question 6

If the output level is such that the aggregate expenditure line lies below the 45-degree line, which of the following is true?

A.	Aggregate expenditure is greater than output, so inventories will increase and output will be raised.
B.	Aggregate expenditure is greater than output, so inventories will decrease and output will be increased.
C.	Aggregate expenditure is less than output, so inventories will decrease and output will be raised.
D.	Aggregate expenditure is less than output, so inventories will increase and output will be lowered.
E.	Aggregate expenditure is greater than output, so inventories will increase and output will be lowered.

1 points

Question 7

If the marginal propensity to consume is 0.7, the expenditure multiplier is

A.	7.0
B.	0.7
C.	3.0
D.	3.3
E.	not determinable without additional information.

1 points

Question 8

Aggregate expenditure is the sum of

A.	all types of spending by households and firms
B.	spending and savings by households
C.	spending by households and governments on final goods and services
D.	spending by households, government, firms, and foreigners on final goods and services
E.	all spending and saving by households, firms, and governments

1 points

Question 9

If the marginal propensity to consume is 0.5 and disposable income increases by $10,000, by how much will consumption spending increase?

A.	$10,000
B.	$500
C.	$50
D.	$5,000
E.	$9,524

1 points

Question 10

When real consumption expenditure is plotted against real disposable income the resulting relationship is

A.	very weak.
B.	virtually flat .
C.	positive and very close to linear.
D.	negative and very close to linear.

indigognu668

Suppose that the Australian economy is at long run equilibrium, and the Australian government announces its decision to decrease spending on infrastructure.

Discuss the short-run effects of a decrease in spending on aggregate espenditure (AE) and aggregate demand (AD). in your discussion, explain the process that moves the economy to its new equilibrium output. That is, explain what would happen to:

1. aggregate planned expenditure

2. firms inventories and production

3. disposable income and consumption expenditure

4. aggregate demand and supply

5. real GDP and price level

Use the AE and AD Graph for your graphical analysis to support your explanation.

sapphiredinosaur980

ECF1200 Lecture Notes - Lecture 6: Macroeconomic Model, Aggregate Demand, Macroeconomics

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