ECON 203 Lecture Notes - Lecture 12: Matrox G400

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3 Mar 2017

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Ae = total spending on domestically (value of production measured by gdp) produced goods and services. Ae = consumption spending by households + investment spending by producers + government spending on public goods and services + net exports. Net exports = consumption spending on domestic goods by foreign suppliers c, i, g spending on foreign goods. = disposable income, net income, income after taxes. ( ) + io + go + xo - 3 + This function describes aggregate spending on domestically produced goods and services. If no government (chap 6): = 3 + + io + xo - 3 . ( ) + io + go. Taxes = t*y disposable income : y-(t*y) = (1-t)y: c=3 , ex : 0. 8(1-0. 25)=0. 6. If taxes are lump sum (constant amount to be paid regardless of the level of income) Ex: payments made by everybody regardless of the level of income: toll, fee. Ao (autonomous aggregate expenditure intercept of the aggregate expenditure function)

Related Questions

Assume the following values of an economy.

Planned Investment (Ip) = $20

Autonomous Consumption (C ) = $30

Marginal Propensity to consume (MPC) = .9

a. What is the equilibrium income?

b. What is the value of saving at equilibrium?

c. Does the saving and Investment Identity hold true at equilibrium income OR GDP?

2. In addition to the values given in question (1) above, assume the government increases its spending by $30 without raising taxes. The government can do this by borrowing from the private sector.

a. Based on this information calculate the new level of equilibrium income.

b. Calculate the total value of consumption at equilibrium.

c. Calculate the total value of saving at equilibrium.

3. In addition to questions in (1 & 2) above, assume the government decides to raise autonomous taxes by $30 to balance its budget.

a. What is the new value of equilibrium income?

b. What is the value of the autonomous tax multiplier?

c. What is the value of autonomous spending multiplier?

4. In addition to the value in questions (1, 2 & 3), assume the following values.

Autonomous export (Xa) = $30

Autonomous import (Ma) = $10

Marginal propensity to import = 0.1

a. What is the new value of equilibrium income?

b. What is the value of total consumption of domestically produced good at equilibrium?

c. What is the value of the trade surplus or deficit at equilibrium?

d. What is the value of the marginal propensity to consume domestically produced goods?

e. What is the value of capital inflow or outflow

azuremosquito975

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

Assume the following values of an economy.

Planned Investment (Ip) = $20

Autonomous Consumption (C ) = $30

Marginal Propensity to consume (MPC) = .9

What is the equilibrium income?

Y* = aggregate demand at the equilibrium level. (Consumption + investment)

Consumption function = autonomous consumption + mpc * Y.

C=30 + .9Y

AD = 30 + .9Y + 20 = 50 + .9Y

Y= 50 + .9Y.1Y = 50

Y = $500 is the equilibrium level of income.

What is the value of saving at equilibrium?

Savings = income - consumption at the equilibrium level of Y=500,

Consumption = 30 +.9 * 500 = $480

Savings = 500 - 480= 20

c. Does the saving and Investment Identity hold true at equilibrium income OR GDP?

Since planned investment = $20 which is equal to savings calculated, the saving investment identity holds true at equilibrium income.

2. In addition to the values given in question (1) above, assume the government increases its spending by $30 without raising taxes. The government can do this by borrowing from the private sector.

a. Based on this information calculate the new level of equilibrium income.

If Government expenditures = $30, Y = C + I + G

Y = 1/1-.09 * (30+20+30) Y = 800

b. Calculate the total value of consumption at equilibrium.

C = 30 + .9(800) = 750

c. Calculate the total value of saving at equilibrium.

Savings = I - C = 800 - 750 = 50

3. In addition to questions in (1 & 2) above, assume the government decides to raise autonomous taxes by $30 to balance its budget.

What is the new value of equilibrium income?

Y = 1/1-.9 (30-.9(30) +20+30) = 530

What is the value of the autonomous tax multiplier?

-.09/.01 = -9

c. What is the value of autonomous spending multiplier?

1/.1 = 10

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ECON 203 Lecture Notes - Lecture 12: Matrox G400

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