Question

Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?

1. the saving schedule
2. the investment schedule
3. the consumption schedule
4. the investment demand curve

The multiplier effect relates changes in

1. the price level to changes in real GDP.
2. the interest rate to changes in investment.
3. disposable income to changes in consumption.
4. spending to changes in real GDP.

The multiplier can be calculated by dividing

1. one by one minus the marginal propensity to invest.
2. one by one minus the marginal propensity to save.
3. the initial change in spending by the change in real GDP
4. the change in real GDP by the initial change in spending

In the aggregate expenditures model, we note that an increase in government purchases G and an increase in lump-sum taxes T of the same amount will have

1. the same magnitudes of impact on equilibrium real GDP, though in opposite directions.
2. different effects on real GDP, with the change in G having a larger impact than the change in T.
3. different effects on real GDP, with the change in T having a larger impact than the change in G.
4. essentially the same effect on equilibrium real GDP, both in magnitude and in direction.

In a recessionary expenditure gap, the equilibrium level of real GDP is

1. less than planned aggregate expenditures.
2. greater than planned aggregate expenditures.
3. greater than full-employment real GDP.
4. less than full-employment real GDP.

In an inflationary expenditure gap, the equilibrium level of real GDP is

1. greater than planned investment.
2. equal to full-employment real GDP.
3. greater than full-employment real GDP.
4. less than full-employment real GDP.

The $787-billion stimulus package enacted by the federal government in 2009 to try to deal with the Great Recession was intended to

1. shift the aggregate expenditures schedule down.
2. close an inflationary expenditures-gap.
3. bring inflation down.
4. push the aggregate expenditures schedule upward.

Answer 1

1. the investment schedule
Investment schedule is horizontal line. Other lines are either downward sloping or upward sloping.

2. spending to changes in real GDP.
Multiplier effect explains how changes in spending impact real GDP.

3. the change in real GDP by the initial change in spending
Multiplier = Change in real GDP/Change in spending

4. essentially the same effect on equilibrium real GDP, both in magnitude and in direction.
If change in G = change in T, then GDP changes by same amount and in same direction.

5. less than full-employment real GDP.
There is recessionary gap when real GDP < full employment GDP.

6. greater than full-employment real GDP.
There is inflationary gap when real GDP > full employment GDP.

7. push the aggregate expenditures schedule upward.
Stimulus package was to stimulate the expenditures in the economy to remove recessionary gap.