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Which of the following models is referred to in the text as the "Keynesian aggregate expenditures model"?
Which of the following models is referred to in the text as the "Keynesian aggregate expenditures model"?
What is the relationship between GDP and DI in the model presented in the text?
What is the relationship between GDP and DI in the model presented in the text?
According to the assumptions in the text, what is the formula for calculating GDP in a private, closed economy?
According to the assumptions in the text, what is the formula for calculating GDP in a private, closed economy?
What is the role of prices in the Keynesian aggregate expenditures model, as described in the text?
What is the role of prices in the Keynesian aggregate expenditures model, as described in the text?
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What does the text specifically say is ignored in the simplified model?
What does the text specifically say is ignored in the simplified model?
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If the economy is at a level of real GDP of $450 billion, what is the unplanned change in inventories?
If the economy is at a level of real GDP of $450 billion, what is the unplanned change in inventories?
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When the economy is at equilibrium, what is the relationship between the level of real GDP and aggregate expenditures?
When the economy is at equilibrium, what is the relationship between the level of real GDP and aggregate expenditures?
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If the economy is at a level of real GDP of $410 billion, what is the tendency of employment, output, and income?
If the economy is at a level of real GDP of $410 billion, what is the tendency of employment, output, and income?
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What does the investment schedule represent?
What does the investment schedule represent?
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What is the relationship between the investment demand curve and the investment schedule?
What is the relationship between the investment demand curve and the investment schedule?
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Which of these options are correct? (Select all that apply)
Which of these options are correct? (Select all that apply)
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Which of the following best describes the relationship between the level of employment and the level of real GDP?
Which of the following best describes the relationship between the level of employment and the level of real GDP?
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If the economy is at a level of real GDP of $510 billion, what is the tendency of the economy?
If the economy is at a level of real GDP of $510 billion, what is the tendency of the economy?
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What is the significance of the equilibrium level of GDP?
What is the significance of the equilibrium level of GDP?
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What would happen to the equilibrium level of GDP if the investment schedule shifted upward?
What would happen to the equilibrium level of GDP if the investment schedule shifted upward?
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What is the balance budget multiplier value as mentioned in the content?
What is the balance budget multiplier value as mentioned in the content?
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Which factor is directly impacted by lump sum taxation according to the information on equilibrium GDP?
Which factor is directly impacted by lump sum taxation according to the information on equilibrium GDP?
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In the provided data, what is the total aggregate expenditures when the real domestic output and income is $490 billion?
In the provided data, what is the total aggregate expenditures when the real domestic output and income is $490 billion?
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What is the relationship between government purchases and equilibrium GDP as evidenced in the content?
What is the relationship between government purchases and equilibrium GDP as evidenced in the content?
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If real domestic output rises to $550 billion, what is the net export value as per the available data?
If real domestic output rises to $550 billion, what is the net export value as per the available data?
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In the context of government purchases impacting equilibrium GDP, which variable does NOT contribute to the overall aggregate expenditures?
In the context of government purchases impacting equilibrium GDP, which variable does NOT contribute to the overall aggregate expenditures?
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What is the total domestic consumption when real domestic output is at $430 billion?
What is the total domestic consumption when real domestic output is at $430 billion?
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What is the change in savings when real domestic output increases from $450 billion to $470 billion?
What is the change in savings when real domestic output increases from $450 billion to $470 billion?
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What does GDP equal when calculating disposable income and taxation?
What does GDP equal when calculating disposable income and taxation?
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Which scenario describes an inflationary expenditure gap?
Which scenario describes an inflationary expenditure gap?
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What might be a response to a recessionary expenditure gap?
What might be a response to a recessionary expenditure gap?
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How did the federal government attempt to address the recession of 2007-09?
How did the federal government attempt to address the recession of 2007-09?
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What is indicated by a recessionary expenditure gap?
What is indicated by a recessionary expenditure gap?
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In the equilibrium GDP model, what happens when there is a decrease in consumption due to increased taxes?
In the equilibrium GDP model, what happens when there is a decrease in consumption due to increased taxes?
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According to Keynesian economics, what should the government do to combat cyclical unemployment?
According to Keynesian economics, what should the government do to combat cyclical unemployment?
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What does a decrease in government spending usually indicate in terms of GDP?
What does a decrease in government spending usually indicate in terms of GDP?
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What is the role of net exports in the calculation of GDP?
What is the role of net exports in the calculation of GDP?
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What is a characteristic of Say's Law within classical economics?
What is a characteristic of Say's Law within classical economics?
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What is the primary focus of Keynesian economics?
What is the primary focus of Keynesian economics?
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If aggregate expenditures are at balance but output is not at full employment, what type of gap exists?
If aggregate expenditures are at balance but output is not at full employment, what type of gap exists?
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Which of the following can lead to a full-employment GDP condition?
Which of the following can lead to a full-employment GDP condition?
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What does 'aggregate expenditures' account for in an economy?
What does 'aggregate expenditures' account for in an economy?
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What does 'Ig' represent in the equation C + Ig = GDP?
What does 'Ig' represent in the equation C + Ig = GDP?
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What is the relationship between saving and planned investment at equilibrium GDP?
What is the relationship between saving and planned investment at equilibrium GDP?
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What is the relationship between unplanned changes in inventories and equilibrium GDP?
What is the relationship between unplanned changes in inventories and equilibrium GDP?
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What is the role of the multiplier effect on equilibrium GDP?
What is the role of the multiplier effect on equilibrium GDP?
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What is the role of net exports in the aggregate expenditure (AE) model?
What is the role of net exports in the aggregate expenditure (AE) model?
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What does a positive value for Xn (Net Exports) indicate about a country's trade balance?
What does a positive value for Xn (Net Exports) indicate about a country's trade balance?
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What is the effect of a depreciation of a country's currency on its net exports?
What is the effect of a depreciation of a country's currency on its net exports?
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How do tariffs affect a country's GDP?
How do tariffs affect a country's GDP?
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Which of the following is NOT a factor that can influence a country's net exports, according to the content?
Which of the following is NOT a factor that can influence a country's net exports, according to the content?
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How can a country's net exports be positive despite having a trade deficit?
How can a country's net exports be positive despite having a trade deficit?
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What is the relationship between equilibrium GDP and net exports?
What is the relationship between equilibrium GDP and net exports?
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What is the significance of the AE line being steeper than the 45-degree line in a graph displaying aggregate expenditures?
What is the significance of the AE line being steeper than the 45-degree line in a graph displaying aggregate expenditures?
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Which of the following can be considered an injection of spending into the economy?
Which of the following can be considered an injection of spending into the economy?
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What is the most likely impact of a global economic recession on a country's net exports?
What is the most likely impact of a global economic recession on a country's net exports?
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Which of the following is NOT a potential consequence of a country implementing tariffs on imported goods?
Which of the following is NOT a potential consequence of a country implementing tariffs on imported goods?
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What is the significance of the slope of the AE curve?
What is the significance of the slope of the AE curve?
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Study Notes
Aggregate Expenditures Model
- The model focuses on a private, closed economy.
- Prices are fixed in the model.
- GDP equals disposable income (DI).
- Depreciation and net factor income from abroad (NFFI) are zero.
- The government is not included in the model.
- All the saving is made by households only.
- GDP = National Income (NI), Personal Income (PI) and Disposable Income (DI).
- The private closed economy is represented by C + Ig.
Chapter Objectives
- Summarize aggregate expenditures for a private closed economy.
- Explain characteristics of equilibrium real GDP in a private closed economy.
- Discuss changes in equilibrium real GDP and the multiplier effect.
- Examine the role of the government and international sectors.
- Describe inflationary and recessionary expenditure gaps.
Assumptions and Simplifications
- The model is a Keynesian aggregate expenditures model, focusing on demand-side factors.
- Prices remain constant.
- GDP is equivalent to disposable income.
- Depreciation and net factor income from abroad (NFFI) are zero.
- The government's role is excluded.
- All saving is done by the households.
- Equilibrium GDP is determined by the aggregate expenditures schedule.
- Output equals the demand for goods and services in equilibrium states.
- There is only one equilibrium GDP level.
Model Simplifications
- Investment demand is a curve, which is negatively sloped, where investment demand is inversely related to interest rates.
- Investment schedule is a horizontal line, showing the investment spending planned at a certain interest rate. At any level of GDP, the amount of investment planned will remain constant.
Equilibrium GDP
- Real GDP is equal to the aggregate expenditures (C + Ig).
- The aggregate expenditures schedule shows the total planned spending at each level of GDP.
- Quantity of goods produced equals the quantity of goods purchased.
- There is only one equilibrium level of GDP to be attained.
Equilibrium GDP: Determination
- Charts illustrate the equilibrium real GDP, considering levels of real domestic output, consumption, saving, investment, aggregate expenditures, and changes in inventories.
- An increase in the real domestic output leads to a rise in equilibrium GDP.
- The equilibrium level is where aggregate expenditure equals the production level.
Other Features of Equilibrium GDP
- Saving equals planned investment.
- Savings represent a leakage of spending.
- Investment functions as an injection into the spending stream.
- There are no unplanned changes in inventories.
- Firms do not have incentives to change their output levels.
Changes in Equilibrium GDP
- Changes in investment spending will result in changes in equilibrium GDP.
- An increase in investment by a particular amount will impact the GDP.
- A decrease in investment will have the opposite effect.
- The multiplier effect amplifies changes in spending.
Adding International Trade
- Net exports are included in aggregate expenditures.
- A private open economy is considered.
- Exports generate production, income, and employment.
- Imports reduce domestic spending.
- Net exports can either be positive or negative.
The Net Export Schedule
- Charts illustrate two net export schedules showing the relationship between real GDP and net exports.
- Net exports fluctuate with changes in GDP.
Net Exports and Equilibrium GDP
- Positive net exports lead to an upward-sloping aggregate expenditure line with upward-sloping aggregate expenditure line.
- Negative net exports lead to a less-steep aggregate expenditure line with an upward-sloping aggregate expenditure line.
- The equilibrium point is where the aggregate expenditure line crosses the 45-degree line.
International Economic Linkages
- Prosperity in economies abroad may boost exports.
- Exchange rate fluctuations can influence exports (e.g., currency depreciation to increase exports, but imports will be expensive).
- Tariffs should be used with caution, as other countries may retaliate.
- International trade can affect the overall GDP of multiple countries.
Global Perspective (Data)
- Countries' net exports are displayed graphically and numerically, including data from some countries.
Adding the Public Sector
- Government purchases influence equilibrium macroeconomic GDP (they are subject to a multiplier effect).
- Taxation impacts equilibrium GDP through the negative wealth effect.
- Taxes have a partial offsetting effect on equilibrium GDP.
- Government policies like tax rebates and stimulus packages will increase the GDP.
Government Purchases and Equilibrium GDP (Data)
- Charts display data for real domestic output, consumption, saving, investment, exports, imports, government purchases, and aggregate expenditure.
Taxation and Equilibrium GDP (Data)
- Tabular data displays disposable income, taxes, consumption, saving, investment, exports, imports, government purchases, and aggregate expenditure in a closed economy.
Equilibrium vs. Full Employment
- Recessionary expenditure gap arises when aggregate spending is insufficient to reach full employment GDP.
- Inflationary expenditure gap occurs when aggregate spending exceeds full employment GDP.
- Policy responses include adjustments to government purchases(G) or taxes (T).
Application: The Recession of 2007-09
- The recession was triggered by a decline in aggregate expenditures, consumption, and investment.
- The Federal government implemented Keynesian policies to address the recession.
- Tax rebate checks and a stimulus package were among the key policies.
Say's Law, Great Depression, Keynes
- Classical economics emphasized the supply side.
- Say's Law argues that supply creates its own demand, implying automatic economic adjustment.
- Keynesian economics highlighted the demand side's role.
- Cyclical unemployment is possible, and economies may not self-correct.
- Government intervention is essential to manage macroeconomic instability.
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Description
Test your understanding of the Aggregate Expenditures Model in a private closed economy. This quiz will cover key concepts such as equilibrium real GDP, the multiplier effect, and expenditure gaps. Understand the assumptions made within this Keynesian framework and how they influence economic outcomes.
