Economics 1022A/B Chapter Notes - Chapter 27: Autonomous Consumption, Disposable And Discretionary Income, Aggregate Demand

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sapphiretortoise72

22 Sep 2016

School

Western University

Department

Economics

Course

Economics 1022A/B

Professor

Emilie Mc Hugh Rivers

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ECON 1022A/B Full Course Notes

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Document Summary

On any given day with fixed prices, the price level is fixed and aggregate demand determines real gdp. Aggregate expenditure: has 4 components: consumption expenditure, investment, government expenditure on goods and services, and net exports. Aggregate planned expenditure: equal to the sum of the planned levels of consumption expenditure, investment, government expenditure on goods and services, and exports minus imports. 2 of the components of planned expenditure consumption and imports change when income changes and so they depend on real gdp. Several factors influence consumption expenditure and saving plans, most importantly: disposable income: aggregate income minus taxes plus transfer payments, aggregate income = real gdp, disposable income depends on gdp. Consumption expenditure that is induced by an increase in disposable income. Saving function: the relationship between saving and disposable income, other things remaining the same: real interest rate, wealth, expected future income. Marginal propensity to consume: the fraction of a change in disposable income that is spent on consumption.

Related Questions

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

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 5000	I = Investment expenditure
G = 3000	G = government expenditure
X = 2000	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 3000

Which of the following increases equilibrium real GDP by $2000
Note: you should use the expenditure multipliers from class to get your answer.

	a.	increase in government expenditure (G) by $2000 and pay for it by raising taxes (T) by $2000
	b.	increase government expenditure (G) by $2000 and pay for it by borrowing money
	c.	increase taxes (T) by $2000
	d.	decrease taxes (T) by $2000
	e.	all of the above
	f.	none of the above

greybutterfly911

Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 2000	I = Investment expenditure
G = 1000	G = government expenditure
X = 1600	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 1000
Yp = 12000	Yp = Potential GDP

Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.

	a.	inflationary gap
	b.	recessionary gap
	c.	no output gap
	d.	government budget surplus
	e.	government budget deficit
	f.	balanced government budget
	g.	trade deficit
	h.	trade surplus
	i.	net exports of zero

pucearmadillo585

Economics 1022A/B Chapter Notes - Chapter 27: Autonomous Consumption, Disposable And Discretionary Income, Aggregate Demand

ECON 1022A/B Full Course Notes

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