EC140 Study Guide - Unemployment Benefits, Business Cycle, Factor Cost

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EC140 Full Course Notes

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Yd = disposable income (slope) = marginal propensity to consume (mpc) Gdp (gross domestic product): market value of all final goods produced in a country in a given time period. Intermediate products: outputs of some firms that are used as inputs by other firms. Value added: each firms contribution to total output. Final good: item bought by its final user during a specified time period. Gdp = total expenditure on final goods = total income. Nation income = sum of value added = sum of expenditure = sum of income. => y/gdp = c + i + g + (x m) Expenditure approach: gdp = c + i + g + (x m) Inventories: stocks of raw materials not yet sold. Accumulations of inventories are actual investments because they represent goods produced. Ca = actual consumption (spending on goods produced current year) Ga = actual government purchases exclude transfer payments)

Related Questions

Consider a small open economy in which aggregate expenditures, AE, is the sum of consumption spending by households, investment spending by firms, government expenditures and net exports. You may assume that net exports are independent of real GDP and taxes are lumpâsum. The numbers in the table below are in billions.

Real GDP	Consumption	Investment	Gov't Expend.	Net Exports	Taxes	Aggregate Expenditures
1000	1430	120	50	-100	160	A
2000	B	120	50	-100	160	2250
3000	2930	120	50	-100	160	3000
4000	3680	120	50	-100	160	3750
5000	4430	120	50	-100	160	4500

a. (4 pts) For the table below, calculate the missing values, A and B. b. (2 pts) From the table above, what kind of situation is the country in with regards to the trade balance (i.e. do we have a trade surplus or deficit)? What kind of situation is the country in with regards to the domestic balance (i.e. is the government running a deficit or surplus)? c. (4 pts) Use the table above to calculate the slope of the AE curve. [Hint: Recall that the slope of the AE curve is the additional increase in aggregate expenditures arising from an increase in GDP.] d. (4 pts) Recall that the Aggregate Expenditure function is written as: AE = AE0 + (slope of AE) *Y where AE0 is Autonomous Expenditures. Use the table in part (a) and your answer to part (c) above to calculate Autonomous Expenditure AE0. [Hint: Calculate induced expenditures for any given level of GDP, and use your answer to figure out AE0] e. (2 pts) In the table above, what is the value of real GDP in equilibrium? f. (4 pts) Suppose that the government decides to spend 500 billion more. By calculating the multiplier (or any other way), calculate the value of the new equilibrium value of real GDP!

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

The following is a model of a closed economy with nogovernment.
C = 44 + 0.6YD I = 12

where C = desired consumption expenditure (in billions of $), YD =disposable
income (in billions of $), and I = desired investment expenditure(in billions
of $).

a) What is autonomous C equal to?
b) What is induced C equal to if national income (Y) is 120?
c) What would happen to C if Y increased by 10?
d) What is the saving function equal to?
e) How can private saving (S) be negative? Explain.
f) What would happen to S if Y increased by 10?
g) At what level of Y is the average propensity to consume (APC)equal to 1?
h) How does the APC change as Y increases?
i) How does the average propensity to save (APS) change as Yincreases?
j) What is aggregate expenditure function equal to?
k) Is the economy in equilibrium when Y is 150? If no, then by howmuch are
the economyâs inventories changing?
l) What are the equilibrium levels of Y, C, S, and YD?
m) At equilibrium, what do the injections and the withdrawals inthis
economy equal?
n) Give two reasons why investment would change from I = 12 to I =18.
o) What are the new equilibrium levels of Y, C, S, and YD ifinvestment
changed from I = 12 to I = 18?
p) What is the size of the (simple) multiplier?
q) What is the change in Y in the 3rd round of the multipliereffect as a
result of the change in investment in part n?

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EC140 Study Guide - Unemployment Benefits, Business Cycle, Factor Cost

EC140 Full Course Notes

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