ECON 1100 Lecture Notes - Lecture 8: Pearson Education, Macroeconomic Model, Aggregate Demand

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1 Dec 2014

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Determining the level of aggregate expenditure in the economy. Understand how macroeconomic equilibrium is determined in the aggregate expenditure model. Aggregate expenditure (keynesian) model a macroeconomic model that focuses on the short-run relationship between total spending and real gdp, assuming that the price level is constant. In 1936, the british economist john maynard keynes published a book, the. General theory of employment, interest, and money, that systematically analyzed the relationship between changes in aggregate expenditure and changes in gdp. Key assumption: in the short run, firms meet the demand for their products at preset prices. Assuming a fix price is equivalent to having a supply curve that is horizontal. With a horizontal supply curve, the position of the demand curve will determine the amount of output produced and sold. To answer this questions we must look at the expenditures of the different agents within the economy. Ae: is total planned spending on final goods and services.

Related Questions

Suppose an economy is in long-run equilibrium. An increase in consumption expenditure will:

A. increase the price level in the long run but have no effect on real gross domestic product.

B. shift the aggregate demand curve rightward and increase the real output in the long run.

C. shift the short-run aggregate supply curve rightward and increase both the price level and real output in the long run.

D. decrease both the price level and real gross domestic product in the long run.

cerisealligator131

Suppose an economy is in long-run equilibrium. An increase in consumption expenditure will:

A) decreases both the price level and the real gross domestic product in the long run.

B) increase the price level in the long run but have no effect on real gross domestic product.

C) shift the short-run aggregate supply curve rightward and increase both the price and real output in the long run.

D) shift the aggregate demand curve rightward and increase the real output in the long run.

ivorymallard37

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

ECON 1100 Lecture Notes - Lecture 8: Pearson Education, Macroeconomic Model, Aggregate Demand

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