Eco 3

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The relationship between investment and GDP is shown by the

investment schedule

in the aggregate expenditures model, it is assumed that investment

does not change when real GDP changes

all else equal , a large decline in the real interest rate will shift the

investment schedule upward

the level of aggregate expenditures in the private closed economy is determined by the

expenditures of consumers and businesses

refer to the above data the MPS IS


the equilibrium level of GDP in a private closed economy is where

aggregate expenditures equal GDP

in a private closed economy when aggregate expenditures equal GDP

planned investment equals saving

in a private closed economy when aggregate expenditures exceeds GDP

business inventories will fall

if at some level of GDP the economy is experiencing an unintended decrease in inventories

domestic output will increase

if an unintended increase in business inventories occurs

we can expect businesses to lower the level of production

for a private closed economy and unintended decline in inventories suggest that

aggregate expenditures exceed GDP

for a private closed economy aggregate expenditures consist of


when investment remains the same at each level of GDP in a private closed economy , the slope of the aggregate expenditures schedule

equals the MPC

Actual investment is 62 billion at an equilibrium output level is


if unintended increase in business inventories occur we can expect

a decline in GDP and rising unemployment

in a private economy …. investment is equal to saving at all levels of GDP and equilibrium occurs only at the level of GDP where… investment is equal to saving

actual; planned

In the aggregate expenditures model, equilibrium GDP IN A PRIVATE CLOSED ECONOMY IS INDICATED BY

All of the above

in the aggregate expenditures model, technological progress will shift the investment schedule

upward and increase aggregate expenditures.

at equilibrium real GDP in a private closed economy;

aggregate expenditures and real GPD are equal

which of the following statements is correct for a private closed economy

saving equals planned investment only at the equilibrium level of GDP

at the 180 billion equilibrium level of income saving is 38 billion in a private closed economy planned investment must be

38 billion equilibrium level of income saving

saving is always equal to

actual investment

actual investment is

planned investment plus unintended increases inventories

investment and savings are respectively

injections and leakages

imports have the same effect on the current size of GDP


exports have the same effect on the current size of


at the equilibrium GDP for an open economy

net exports may be either positive or negative

other things equal if change in the tastes of consumers causes them to purchase more foreign goods at each level of US GDP

Us GDP will fall

If net exports decline from zero to some negative amount the aggregate expenditures schedule would

shift downward

if net exports are positve

aggregate expenditures are greater at each level of GDP then when net exports are zero or negative

other things equal an increase in economy exports will

increase its domestic aggregate expenditures and therefore increase its equilibrium GDP

If the dollar appreciates relative to foreign currencies we would expect

a country’s net exports to fall

if a nation imposes tariffs and quotas on foreign products the immediate effect will be to

increase domestic output and employment

if the multiplier in an economy is 5, a 20 billion increase in net exports will

increase by 100 billion

if the equilbrium level of GDP in a private open economy is 100 billion and consumption is 700 billion at that level of GDP then

Ig+Cn must equal 300 billion

an exchange rate

is the price at that the currencies of any two nations exchange for one another

if the unitied states wants to increase its net exports it might take steps to

increase the dollar price of foreign currencies

other things equal serious recession in the economies of US trading partners will

depress real output and employment in the US economy

In a mixed economy the equilibrium GDP exists where


other things equal, if 100 billion of government purchases G is added to private spending C+Ig+Xn

in which of the following situation for a mixed economy will the level of GDP expand

when Ig+X+G exceeds Sa+M+T

If a lump -sum income tax of 25 billion is levied and the and the MPS is .20 the

consumption schedule will shirft downward by 20 billion

Suppose the economy is operating at its ful employment noninflationary GDP and the MPC is .75 the federal government now finds that it must increase spending on military goods by 21 billion in response to deterioration in the international political situation to sustain full employment non inflation GDP government must

increase taxes by 28 billion

a 1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP that will 1 decline in taxes because

a portion of a tax cut will be saved

ignoring international trade in a mixed economy aggregate expenditures are comprised of


if APC=.6 and MPC=.7 the immediate impact of an increase in personal taxes of 20 will be to

decrease consumption by 14

when the public sector is added to the aggregate expenditures are model

we add a new leakage in the form of taxes and a new injection in the form of government spending

the level of aggregate expenditures in a mixed open economy is comprised of


in a mixed closed economy

taxes and saving are leak ages while investment and government purchases are injections

an increase in taxes will have a greater effect on the equilibrium GDP

the larger the MPC

which of the following would increase GDP by the greatest amount

a 20 billion increase in government spending

what do investment and government expenditures have in common

both represent injection to the circular flow

taxes represent

a leakage of purchasing power like, savings

suppose government finds it can increase the equilibrium real GDP 45 billion by increasing government purchases by 18 billion

MPS in the economy is .4

in the aggregate expenditures model, a reduction in taxes may

increase saving

in the agregate expenditures model an in increase in government spending may

increase output and employment

if a 20 billion increase in government expenditures increases equilibrium GDP by 50 billion then

the MPC for this economy is .6

a lump sum tax mean that

the same amount of tax revenue is collected at each level of GDP

equal increase in government purchases and taxes will

increase the equilibrium GDP and the size of that increase is independent of the size of the MPC

an inflationary expenditure gap is the amount by which

aggregate expenditures exceed the full employment level of GDP

cyclical unemployment in the US is essentially the consequence of

a deficient level of aggregate expenditures

the aggregate demand curve

shows the amount of real output that will be purchased at each possible price level

the interest rate effect suggest that

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending

the real balances effect indicates that

a higher price level will decrease the real value of many financial assets and therefore reduce spending

the foreign purchases effect suggest that an increase in the US price level relative to other countires will

increase us imports and decrease us exports

the real balances interest rate and foreign purchases effects all help explain

why the aggregate demand curve is down sloping

the factors that affect the amounts that consumers businesses governemtn and foreigners wish to purchase at each price level are the

determinants of aggregate demand

Other things equal if the national incomes of the major trading partners of the US were to rise the US

aggregate demand curve would shift to the right

other things equal a decrease in the real interest rate will

expand investment and shift AD curve to the right

a decline in investment will shift the AD curve

left by a multiple of the change in investment

and economy s aggregate demand curve shifts leftward or rightward by more than changes in initial spending because

multiplier effect

the economy’s long run AS curve assumes that wages and other resources prices

eventually rise and fall to match upward or downward changes in the price level

the aggregate supply curbe (short run)

is steeper above the full employment output than below it

monopoly or market power is the ability of a firm to

set its price

other things equal a reduction in personal and business taxes can be expected to

increase both aggregate demand and aggregate supply

prices and wages ten to be

flexible upward but inflexible downward

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