ECON-1010 Chapter Notes - Chapter 11: Autonomous Consumption, Consumption Function, Investment Goods

64 views5 pages

emeraldmallard514

26 Nov 2016

School

Vanderbilt University

Department

Economics

Course

ECON-1010

Professor

Driskill Robert

For unlimited access to Textbook Notes, a Class+ subscription is required.

ECON-1010 Full Course Notes

Verified Note

3 documents

Document Summary

Income-expenditure model - does not take into account price changes. Good for understanding short run not long run changes. Omit the government and foreign sector temporarily. Only consumers can demand consumption goods and rms demand investment goods. Planned expenditures: another term for total demand for goods and services (c + i) Gdp at which planned expenditure equals the amount that is produced (y*) = c + i. Now we need to recognize that consumers" planned expenditures will depend on their level of income. Consumption function: the relationship between consumption spending and the level of income. Refer back to chapter 9 notes for more info on consumption function. Increases in consumer wealth will cause an increase in autonomous consumption. Increases in consumer con dence will increase autonomous consumption. Now we recognize that consumption increases with the level of income. Equilibrium output = (autonomous consumption + investment) / (1 - mpc) y* = (ca + i) / (1 - b)

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

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

In a closed (no foreign sector), mixed economy with stable prices, if we assume that consumption (C) and investment (I) spending do not depend on the interest rate (r), can we conclude that

a) The interest-related expenditure (IRE) function is vertical?
b) Monetary policy has no effect on real income and output?

Explain your answers.

purpleotter951

ECON-1010 Chapter Notes - Chapter 11: Autonomous Consumption, Consumption Function, Investment Goods

ECON-1010 Full Course Notes

Document Summary

Get access

Related Documents

ECON-1010 Chapter Notes - Chapter 9 : Nominal Rigidity, Aggregate Demand, Aggregate Supply

ECON-1010 Chapter Notes - Chapter 9: Gross Domestic Product, Fiscal Multiplier, Autonomous Consumption

ECON-1010 Chapter Notes - Chapter 10: Aggregate Demand, Aggregate Supply, Graphical Model

Related Questions