ECON 1102 Lecture Notes - Lecture 8: Human Capital, Output Gap, Potential Output

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burgundywalrus306

15 Oct 2018

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Econ 1102 - lecture #8 - chapter 24. Suppose that consumer spending initially rises by billion for every 1 percent rise in household wealth and that investment spending initially rises by billion for every one percentage point fall i(cid:374) the (cid:396)eal i(cid:374)te(cid:396)est (cid:396)ate. Also assu(cid:373)e that the e(cid:272)o(cid:374)o(cid:373)(cid:455)"s (cid:373)ultiplie(cid:396) is 4. Wealth down - a total effect of 5 x 5 = 25 billion - shift left. Interest rate down - good news - aggregate demand shift to the right, 2 x 20 = 40 billion - shift right. Combine the 2 > +40 billion 25 billion = 15 billion. Multiplier was 4 so the real effect of the increase in aggregate demand is. Each of the following events caused a shift in the ad or as curve in canada. Identify which curve was affected and describe the effect of equilibrium real gdp and the price level. ***there will only be one shift on the exam***

Related Questions

Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economyâs multiplier is 3.

a. If household wealth falls by 5 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? b. In what direction and by how much will it eventually shift?

turquoiseleopard985

1. Which of the following will cause the aggregate demand curve to shift to the left?

A. a reduction in interest rates

B. An expansionary monetary policy

C. A reduction in the reserve requirement

D. Fed sales of bonds to the public

E. None of the above

2. Suppose the demand for money falls. In order to maintain interest rates at their previous level, the Fed might:

A. Sell government securities

B. Lower the reserve requirement

C. Lower the discount rate

D. Sell additional reserves through the Term Auction Facility

E. None of the above

3. Suppose banks are just meeting their reserve requirement of 25% and the Fed sells $30 billion in government securities to commercial banks. The effect of this sale is to:

A. Increase excess reserves by $30 billion

B. Reduce excess reserves by $7.5 billion

C. Reduce the potential money supply by $90 billion

D. Reduce the potential money supply by $120 billion

E. None of the above

4. If the intent of the Fed is to increase GDP, it should:

A. Raise the reserve requirement

B. Raise the discount rate

C. Purchase government securities in the open market

D. Ask banks to reduce their amount of loans outstanding

E. None of the above

5. For some time now, the U.S. has been pressuring Japan to institute policies to improve its weak economy. What effect would these policies have on the U.S.?

A) They would cause the U.S. to move up its aggregate demand curve.

B) They would cause the U.S. to move down the aggregate demand curve.

C) They would shift the U.S. aggregate demand curve left.

D) They would shift the U.S. aggregate demand curve right.

pearleopard558

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 1102 Lecture Notes - Lecture 8: Human Capital, Output Gap, Potential Output

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