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EC140 Lecture Notes - Lecture 18: Vise, Savings Account, Autarky

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School
WLU
Department
Economics
Course
EC140
Professor
David Johnson

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Document Summary

Desired aggregate expenditure: the sum of desired or planned spending on domesic output by households, irms, governments, and foreigners. The naional income accounts measure actual expenditures in each of the four expenditure categories. Autonomous expenditure: elements of expenditure that do not change systemaically with naional income. Induced expenditure: any component of expenditure that is systemaically related to naional income. Closed economy: an economy that has no foreign trade in goods, services, or assets. In this chapter we make three basic assumpions: there is no trade with other countries it is a closed economy, there is no government no taxes, the price level is constant. Saving: all disposable income that is not spent on consumpion. Disposable income: the amount of income households received ater deducing what they pay in taxes and adding what they receive in transfers. The two possible used of disposable income is saving and consumpion.

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Related Questions

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.

Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.

C = 0.8(DI) + 1000 C = Consumption expenditure, DI = Disposable Income
I = 2000 I = Investment expenditure
G = 1000 G = government expenditure
X = 1600 X = spending on exports
M = 1800 M = spending on imports
DI = Y - T Y = real GDP, T = tax revenues/>
T = 1000  
Yp = 12000 Yp = Potential GDP

Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.

  a.

inflationary gap
  b.

recessionary gap
  c.

no output gap
  d.

government budget surplus
  e.

government budget deficit
  f.

balanced government budget
  g.

trade deficit
  h.

trade surplus
  i.

net exports of zero

Why is there a "two-way" link between consumption and GDP? ❢ How does an increase in disposable income affect the consumption function? An increase in expected future income? ❢ If the consumption function shifts upward, what happens to the saving function? Why? ❢ When is actual aggregate expenditure different from planned aggregate expenditure? Why happens to being the two back to equality? ❢ Explain why income taxes reduce the size of the expenditure multiplier. ❢ When the equilibrium real GDP is below potential GDP, how does the unemployment rate compare with the natural rate? What is the results of this state of affairs that restores the long-run equilibrium? ❢ What is a recessionary gap? How does the economy adjust to eliminate a recessionary gap?