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ECON 203 Lecture Notes - Lecture 9: Aggregate Demand, John Maynard Keynes, Real Interest Rate

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School
Texas A&M University
Department
Economics
Course
ECON 203
Professor
Jonathan Scott

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Document Summary

Econ 203: principles of macroeconomics - lecture 9: the multiplier effect. A small change in planned aggregate expenditure causes a much larger change in equilibrium gdp. In the model we have been using, planned investments, government expenditures, and net exports are autonomous expenditures: their level does not depend on the the level of. However, consumption has both an autonomous and an induced effect. So, its level does depend on the level of gdp, which is represented by the upward slope of the ae line. An increase in autonomous expenditures causes the aggregate demand line to shift upward. When this happens, real gdp increases by more than the change in autonomous expenditures; this is known as the multiplier effect. The value of the increase in equilibrium real gdp divided by the increase in autonomous expenditures is known as the multiplier. Initially, gdp will rise by the amount of the increase in autonomous expenditure.

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Related Questions

Aggregate expenditure is the total amount of spending in the economy that determines the level of the GDP. Components of aggregate expenditure are autonomous expenditure, planned private investments, government expenditure, and net exports. When autonomous expenditure increases or decreases, it has a multiplied effect on the GDP.

Referring to the 10-year historical period that you chose for your final project,( i choose Korean War and Vietnam War.). discuss an example of a change in autonomous spending. Research a government policy implemented during that time and discuss the multiplier effect it had on the economy.

Aggregate expenditure is the total amount of spending in the economy that determines the level of the GDP. Components of aggregate expenditure are autonomous expenditure, planned private investments, government expenditure, and net exports. When autonomous expenditure increases or decreases, it has a multiplier effect on the GDP.

Referring to the 10-year historical period that you chose for your final project, discuss an example of a change in autonomous spending. Research a government policy implemented during that time and discuss the multiplier effect it had on the economy.

I have chosen 1980-1989 in the US.

10,A change in the price level​ ________ the AE curve and​ ________ the AD curve.
A.
​shifts; shifts
B.
has no effect​ on; results in a movement along
C.
results in a movement​ along; results in a movement along
D.
results in a movement​ along; shifts
E.
​shifts; results in a movement along

17,When the price level​ falls, the aggregate planned expenditure curve shifts​ ________, equilibrium expenditure​ ________ and there is a movement​ ________ along the aggregate demand curve.
A.
​upward; increases; upward
B.
​downward; decreases; downward
C.
​upward; decreases; downward
D.
​upward; increases; downward
E.
​downward; increases; upward

21,Which of the following increases the size of the expenditure​ multiplier?
A.
an increase in autonomous spending
B.
a decrease in the marginal propensity to consume
C.
a decrease in the marginal propensity to import
D.
an increase in the marginal income tax rate
E.
an increase in investment

23,If the quantity of real GDP demanded is greater than the quantity of real GDP​ supplied, then
A.
the price level falls and firms decrease production.
B.
aggregate demand changes to restore equilibrium.
C.
the economy must be producing at potential GDP.
D.
the price level falls to restore the macroeconomic equilibrium
E.
the price level rises and firms increase production.


24, ________ can trigger an expansion.
A.
Equality between aggregate expenditure and real GDP
B.
A decrease in induced expenditure
C.
A downward shift of the AE line
D.
An increase in autonomous expenditure
E.
A decrease in autonomous expenditure