ECON1013 Lecture Notes - Lecture 10: John Maynard Keynes

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skybee806

26 Jun 2016

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It is important to note that in our analysis above we spoke of. planned investment. at gdp = billion in table 9-4, both saving and planned investment are billion. Saving represents a leakage from spending stream and causes c to be less than gdp. Some of output is planned for business investment and not consumption, so this investment spending can replace the leakage due to saving. If aggregate spending is less than equilibrium gdp as it is in table 9-4, line 8 when gdp is billion, then businesses will find themselves with unplanned inventory investment on top of what was already planned. This unplanned portion is reflected as a business expenditure, even though the business may not have desired it, because the total output has a value that belongs to someone-either as a planned purchase or as an unplanned inventory.

Related Questions

1. The multiplier helps explain

A. why a decrease in taxes causes real Gross Domestic Product (GDP) to fall by more than the amount of the decrease in taxes.

B. why a fall in investment cause real Gross Domestic Product (GDP) to rise by more than the amount of the decrease in investment.

C. why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.

D. why an increase in disposable income causes real Gross Domestic Product (GDP) to rise by less than the amount of the increase in disposable income.

2. If the marginal propensity to save (MPS) increases, the multiplier

A. decreases.

B. can either increase or decrease, depending on what happens to the marginal propensity to consume (MPC).

C. stays the same.

D. increases.

QUESTION 60

The investment function will shift when there is a change in

		A. the opportunity cost of retained earnings.
		B. firms' profit expectations.
		C. the cost of borrowing.
		D. the interest rate.

1.43 points

QUESTION 61

In the Keynesian model, whenever planned saving exceeds planned investment,

		A. there will be unplanned inventory accumulation.
		B. real GDP will not be influenced.
		C. the interest rate will remain unchanged.
		D. there will be unplanned inventory depletion.

1.43 points

QUESTION 62

In the Keynesian model, whenever planned saving is less than planned investment,

		A. there will be unplanned inventory depletion.
		B. the interest rate will remain unchanged.
		C. there will be unplanned inventory accumulation.
		D. real GDP will not be influenced.

1.43 points

QUESTION 63

Government purchases

		A. are determined by the political process.
		B. are determined by the public.
		C. are influenced by interest rates.
		D. are determined by suppliers.

1.43 points

QUESTION 64

If, at some level of output, total planned real expenditures are less than real Gross Domestic Product (GDP),

		A. real GDP will either fall or remain unchanged, depending on the MPC.
		B. real GDP will rise.
		C. real GDP remains unchanged.
		D. unplanned inventories will increase and real GDP will fall.

1.43 points

QUESTION 65

When the economy is operating at the equilibrium level of GDP, we know that

		A. total planned real expenditures equal real GDP.
		B. real net exports equal inventory changes.
		C. planned real investment spending equals real net exports of zero.
		D. total planned real consumption expenditures equal real GDP.

1.43 points

QUESTION 66

One divided by the marginal propensity to save (MPS) is the formula for

		A. the inverse of the multiplier.
		B. the multiplier.
		C. one minus the multiplier.
		D. autonomous consumption.

QUESTION 67

Thinking like an economist would, which is true of investment?

		A. Investment represents spending on capital goods.
		B. Investment is a stock concept.
		C. Investment is putting money into stocks and bonds.
		D. It is the portion of disposable income that is not used for consumption or saving.

QUESTION 68

Other things being equal, if input prices rise in a country, then there would be

		A. cost-push inflation.
		B. demand-pull inflation.
		C. cost-pull deflation.
		D. more production and a lower price level.

QUESTION 69

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

		A. existing capital equipment can be used more intensively.
		B. wage rates rise almost simultaneously with the price level.
		C. the unemployment rate usually rises dramatically along with the price level.
		D. workers can be switched from counted to uncounted production.

fuchsiaclam197

On the planet Omicron Persei 8, government spending is $1000, net taxes are $1200, and planned investment is $1400. Consumers spend according to the equation C = 100 + 0.8Yd, where Yd represents disposable income. Given this information, fill out the table below to determine which of the output levels represents a macroeconomic equilibrium, then answer the questions that follow. Output (Income) Y Net Taxes T Disposable Income Yd Consumption C Planned Investment I Government Purchases G Planned Aggregate Expenditure AE Unplanned Inventory Change 6200 1200 5000 3850 1400 1000 6250 -50 6700 1200 5500 4225 1400 1000 6625 75 7200 1200 6000 4600 1400 1000 7000 200 7700 1200 6500 4975 1400 1000 7375 325 8200 1200 7000 5350 1400 1000 7750 450

An a. Which level of output is a macroeconomic equilibrium? There is no level of equilibrium based on inventory levels.

b. Is the government budget balanced, in deficit, or surplus, and by how much? Since the government is spending less than it is collecting in taxes, we are showing a surplus.

c. Find the marginal propensity to consume, and the marginal propensity to save. d. Find the government spending multiplier. If the government wanted to increase the equilibrium level of income by $1,000, how much would it have to increase government purchases? e. Find the tax multiplier. If net taxes were lowered by $100, what effect would it have on the equilibrium level of income? Give a specific numerical answer.

cerisewallaby167

1) In which of the three market arenas is each of the following goods traded?

A) U.S Treasury Bonds

B) An Amazon Kindle

C) A Harley-Davison Soft tail motorcycle

D) The business knowledge of Dallas Mavericks%u2019 owner Mark Cuban

E) Shares of Google stock

F) The crop-harvesting abilities of an orangen picker in Florida

2) Explain why imports are subtracted in the expenditure approach to calculating GDP (Gross domestic product)?

3) Go to www. bls.org and click on the links for the state and area employment and unemployment. Look at your home state and describe what changes have taken place in the workforce (in this case California). Has the labor force participation rate gone up or down? Are the state%u2019s experiences the same as the rest of the country? Provide an explanation of why your state%u2019s experiences are the same as or different from the rest of the country?

4) The following questions refer to this table:

Aggregate Consumption Planned

Output/ Income investments

2,000 2,100 300

2,500 2,500 300

3,000 2,900 300

3,500 3,300 300

4,000 3,700 300

4,500 4,100 300

5,000 4,500 300

5,500 4,900 300

A) At each level of output, calculate saving. At each level of output, calculate unplanned investment (inventory change).

What is likely to happen to aggregate output if the economy produces at each of the levels indicated? What is the equilibrium level output?

5) For each of the following, determine whether it is an asset or a liability on the accounting books of a bank. Explain why in each case.

Cash in the vault

Demand deposits

Savings deposits

Reserves

Loans

Deposits at the Federal Reserve

plumdeer95

ECON1013 Lecture Notes - Lecture 10: John Maynard Keynes

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