ECON 102 Lecture Notes - Lecture 13: Keynesian Cross, Fiscal Multiplier, Fiscal Policy

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I u pushes the aggregate economy towards equilibrium rgdp. When rgdp > rgdp* (planned rgdp) rgdp > aep - i = ip + iu> ip - iu > 0. Firms made too much - more unplanned inventories. Need to produce less next year - lay off workers & rgdp (existing inventory) rgdp < rgdp*, iu < 0 - firms don"t produce enough. Aep = c + ip = a + mpc*rgdp + ip. Planned aggregate expenditure condition rgdp = aep. Equilibrium - rgdp* = a + mpc*rgdp* + ip. Can derive the multiplier - mpc - how the spending affects other parts of the economy. The spending multiplier is the change in rgdp created by a change in autonomous aggregate expenditure. To calculate changes, plug in each of the values including the changed one into the delta rgdp formula and subtracting the two to find the difference.

Related Questions

If aggregate expenditures fall short of real GDP in the Keynesian model, then

Question 2 options:

A) employment falls as the economy attains equilibrium.

B) the economy will have deflation.

C) firms are depleting their inventories.

D) the money supply will increase.

Which of the following conditions does not necessarily hold when the economy is in a Keynesian equilibrium?

Question 3 options:

A) There will be no tendency for real GDP to change.

B) The economy will be at full employment.

C) Firms will not have any unplanned inventory investment accumulation

D) Aggregate output will equal aggregate expenditures.

According to the Keynesian model, an economy will have persistent, high unemployment if

Question 4 options:

A) market operate freely.

B) the government runs a budget deficit.

C) firms make too many investments.

D) its total spending is low.

If firms are experiencing unplanned reductions in their inventories,

Question 5 options:

A) firms should reduce their production.

B) aggregate output exceeds aggregate expenditures.

C) firms will increase output and hire more workers.

D) the economy has attained equilibrium

amaranthelk637

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.

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ECON 102 Lecture Notes - Lecture 13: Keynesian Cross, Fiscal Multiplier, Fiscal Policy

ECON 102 Full Course Notes

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