Macroeconomics Demystified by August Swanenberg

Author:August Swanenberg
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2005-04-15T04:00:00+00:00

Quiz Answers

Q11.1 (d). The Keynesian aggregate supply curve is horizontal because the short-run price level is fixed. Therefore, firms will sell whatever is demanded; that is, aggregate demand determines GDP. This situation occurs when GDP is relatively low and significant excess capacity exists.

Q11.2 (c). Assume a small marginal savings rate, such as a 1 percent MPS, which means that the spending multiplier (1/MPS) equals . Please note that the spending multiplier is never zero or negative.

Q11.3 (a). The Depression in the 1930s caused massive unemployment, lack of demand, excess productive capacity, and low prices (deflation), combined with low interest rates. The low interest rates were not sufficient to move new investment because of negative prospects and the existing overcapacity.

Q11.4 (d). The multiplier=equilibrium expenditure/initial amount = .

Q11.5 (e). Income tax reduces disposable income and therefore decreases the induced consumption expenditure change.

Q11.6 (b). The AE curve is the relationship between planned aggregate expenditures C+I+G+(X–M) and disposable income.

Q11.7 (b). The flatter the SAS curve, the stronger the impact of a change in aggregate demand—in this case, the stronger the negative impact on GDP of a decrease in aggregate demand (investment decrease). In Keynes’s theory, the SAS curve is horizontal and changes in aggregate demand have a maximum (multiplier) impact on GDP.

Q11.8 (c). During the Great Depression, countries tried to protect their domestic economies by increasing tariffs. This decreased international trade (by 50 percent) and accelerated the decline in countries’ GDP, further deepening the economies’ depression.

Q11.9 (c). By definition, autonomous expenditure is independent from real GDP.

Q11.10 (d). Aggregate expenditure, by definition, is the sum of consumption expenditure, investment, government purchases, and net exports. It does not include saving or disposable income (or only imports).

Q11.11 (a). During 1995 to 2000 (with 2000 included), the rate of unemployment never exceeded 6.0 percent. The rate declined from just over 5.5 percent in 1995 to almost 3.5 percent in 2000, with the latter number being very close to the natural rate of unemployment.

Q11.12 (c). In the long run, real GDP equals potential real GDP. At that point, real GDP does not change as a result of a change in aggregate expenditures. This means that in the long run, the multiplier is zero.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.