ECON 1100 Chapter Notes - Chapter 8: Macroeconomic Model, Potential Output, Consumption Function

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apricotmoose352

3 Dec 2017

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Chapter 8 - aggregate expenditure & output in the sho. Aggregate expenditure (ae) - total spending in the economy: the sum of consumption, planned investment, government purchases, and net exports. Aggregate expenditure model - a macroeconomic model that focuses on the short- run relationship between total spending and real gdp, assuming that the price level is constant. Key idea of aggregate expenditure model is that in any particular year, level of real. Gdp is determined mainly by the level of aggregate expenditure. Planned spending by firms on capital goods and by households on new homes. Spending by local, provincial, and federal government on goods and services. Spending by foreign firms and households on goods and services produced in canada minus spending by canadian firms and households on foreign produced goods and services. Macroeconomic equilibrium occurs where total spending (planned aggregate expenditure) equals total production (gdp).

Related Questions

Suppose that the Australian economy is at long run equilibrium, and the Australian government announces its decision to decrease spending on infrastructure.

Discuss the short-run effects of a decrease in spending on aggregate espenditure (AE) and aggregate demand (AD). in your discussion, explain the process that moves the economy to its new equilibrium output. That is, explain what would happen to:

1. aggregate planned expenditure

2. firms inventories and production

3. disposable income and consumption expenditure

4. aggregate demand and supply

5. real GDP and price level

Use the AE and AD Graph for your graphical analysis to support your explanation.

sapphiredinosaur980

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

1. Consider the aggregate demand and supply model for a closed economy where net export is zero.

Aggregate demand consists of:

A. consumption, investment, government spending, and net exports.

B. consumption and imports.

C. consumption, investment, and government spending.

D. consumption, government spending, and net exports.

2. For the aggregate demand, income and the price level are:

A. inversely related.

B. both rising.

C. directly related.

D. both falling.

3. For the aggregate supply, in the short run, income and price level are:

A. directly related, but in the long-run, income is constant at full employment GDP.

B. indirectly related, but in the long-run, income is constant at full employment GDP.

C. directly related, but in the long-run, the price level is constant.

D. indirectly related, but in the long-run, the price level is constant.

pinkhippopotamus992

ECON 1100 Chapter Notes - Chapter 8: Macroeconomic Model, Potential Output, Consumption Function

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