Following the Keynesian cross, if there is a sudden tidal wave of investment, then it must be true that:a.Total output will not change at all in the short run because of the crowding out effect.O b. The planned expenditure line becomes steeper than the 45-degree line.Planned spending will be larger than income at the existing output level; inventories will bedepleted fast, and producers must step up production.O d. The planned expenditure line becomes steeper than the 45-degree line.

as we know that AD=C+I in two sector closed model. where I stand for investment and is positively…

Following the Keynesian cross, if there is a sudden tidal wave of investment, then it must be true that: O a. Total output will not change at all in the short run because of the crowding out effect. O b. The planned expenditure line becomes steeper than the 45-degree line. O C. Planned spending will be larger than income at the existing output level; inventories will be depleted fast, and producers must step up production. O d. The planned expenditure line becomes steeper than the 45-degree line.

Following the Keynesian cross, if there is a sudden tidal wave of investment, then it must be true that: O a. Total output will not change at all in the short run because of the crowding out effect. O b. The planned expenditure line becomes steeper than the 45-degree line. O C. Planned spending will be larger than income at the existing output level; inventories will be depleted fast, and producers must step up production. O d. The planned expenditure line becomes steeper than the 45-degree line.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter8: Aggregate Demand And The Powerful Consumer

Section: Chapter Questions

Problem 8DQ

See similar textbooks

Similar questions

It is found that the consumption function for the economy is C = 50 + 0.8 Y d . Current level of output is 8800 and the potential GDP is 9000. Assuming the Keynesian view of the short run, answer the following questions. Illustrate this economy using a carefully labeled diagram. What is a larger concern for this economy: unemployment or inflation? If the economic policy makers want to bring the level of output to the potential GDP by changing the government expenditures (G), how much do they need to change G? Be sure to indicate whether the change is an increase or decrease. True or False and explain: If the policy in part c was successful, the unemployment rate will be zero.
n the Keynesian cross, assume that the consumption function is given byC = 200 + 0.75 (Y - T).Planned investment is 100; government purchasesand taxes are both 100.a. Graph planned expenditure as a function ofincome.b. What is the equilibrium level of income?c. If government purchases increase to 125, whatis the new equilibrium income?d. What level of government purchases is neededto achieve an income of 1,600?
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy�s multiplier is 3. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? The aggregate demand curve will shift_____ by $____ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift_____ by $____ billion..
Refer to the following figure 1. For this economy, if the actual price level exceeds theexpected price level, how much output will the economyproduce in the short-run? A)$17 trillionB)$17.2 trillionC)$16.7 trillionD) Both A and C.2. Given the situation in part (a), this economy wouldexperience A) a recessionary gap of $0.3 trillionB) an expansionary gap of $0.2 trillionC) neither a recessionary gap nor an expansionary gap.D) an expansionary gap of $17.2 trillion. 3. Given the situation in part (a), in this economy (circlethe letter representing the right answer below)A) the actual rate of unemployment would be less than thenatural rate of unemployment.B) the actual rate of unemployment would be above the naturalrate of unemployment.C) the actual rate of unemployment would be equal to thenatural rate of unemployment.D)none of the above.4. In this economy, given the situation in part (a), in thelong-run (circle the letter representing the right answerbelow)A) the nominal wage…
In a closed economy with no government, aggregate expenditure is Select one: O a. None of the options O b. Net Tax plus Consumption O c. consumption plus the MPC O d. saving plus investment.
10.1For each of the following events,explain the short-run and long-run effects on output and price level,assuming policymakers take no action. a) The stock market declines sharply,reducing consumers' wealth. b) The federal government increases spending on national defence. 10.2 In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment?Explain. a)When the investment accelarator is large or when it is small?
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy’s multiplier is 4. a. If household wealth falls by 5 percent because of declining house values, and the real interest rate falls by 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level?
ax policy is one used not only for economic purposes but also for political purposes. It is the opinion of some economists and politicians that the rich should pay more of their income in taxes, and that the resulting fairness from this rise in taxes will lead to more economic growth and a rise in employment. Using the simple expenditure model (Y and Ep, not IS-LM) answer these two questions: One, would a lump-sum tax increase on many high-income households cause GDP to rise in the short run as predicted by the politicians? Why or why not? And two, are there macroeconomic conditions in the simple model under which such a tax increase would be fully warranted? Draw the graphs and explain the outcomes for both cases.
Focus on the concept of marginal propensity to consume and reflect on which of the following would be implied by a highmarginal propensity to consume.O A small change in consumption when income changesO A high saving rateO A high marginal tax rateO An equilibrium level of income near full employmentO A low marginal propensity to save
Suppose that due ot a fiscal stimulus, there is an increase in disposable incomes of $100 billion in the first round. Then, $33 billion was spent in consumption from this initial change of the disposable incomes. Following the same marginal propensity to consume, how much is the change in consumption spending in the next round from the $33 billion?
The spending hypothesis suggests that the main cause of the Great Depression was a decline in spending. Which does NOT support this hypothesis? O The stock market crash of 1929 reduced real wealth. O Government purchases rose between 1929 and 1932. O Widespread bank failures occurred. 0 Investment in housing declined.
Assume that the marginal propensity to consume is 0.75 and that taxes are exogenous. Imagine that government expenditure increases by $10m. Begin by assuming that the interest rate and prices stay fixed. 1. What is the value of the aggregate expenditure multiplier (k)? 2. How would the change be represented in an AD-AS diagram? 3. How would the change differ if the interest rate could change (assuming prices remain fixed)? 4. How would the change differ if the price level could also change?