Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Relective thinking
6) Discuss how the marginal propensity to consume, imports, and marginal tax rates
inluence the expenditure multiplier.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
7) Briely describe how imports and taxes afect the size of the expenditure multiplier.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
108
8) What is the relationship between the slope of the aggregate expenditure curve and the
expenditure multiplier?
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
9) List and explain factors that determine the size of the expenditure multiplier in the
expenditure model when prices are constant.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
10) “A country’s expenditure multiplier is constant over time.” Explain whether the
previous statement is correct or incorrect.
Skill: Level 4: Applying models
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
109
11) Discuss the relationship between the business cycle and changes in autonomous
expenditures.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
12) Suppose an economy has no income taxes or imports. If the MPC is 0.75, what does the
expenditure multiplier equal?
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
13) Suppose the economy has no income taxes or imports. The MPC equals 0.8. What does
the expenditure model predict will be the change in real GDP if investment increases by
$200 billion?
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
110
14) Suppose the economy has no income taxes or imports. How is the size of the
expenditure multiplier related to the marginal propensity to consume? What is the
multiplier if the MPC equals 0.25? If the MPC equals 0.50? If the MPC equals 0.90?
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
15) If an economy experiences a $0.8 trillion increase in investment resulting in an
increase in real GDP from $10 trillion to $12 trillion,
a. what is the change in equilibrium expenditure?
b. what is the change in autonomous expenditure?
c. what is the multiplier?
d. how would an increase in the marginal tax rate efect the multiplier?
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
111
16) The slope of the AE curve is .80. What is the expenditure multiplier? Everything else
the same, by how much does equilibrium aggregate expenditure increase if
a. exports increase from $1.75 trillion to $2.25 trillion?
b. government expenditure on goods and services decrease from $2.0 trillion to $1.8
trillion?
c. investment increases from $1.2 trillion to $2.3 trillion?
Skill: Level 4: Applying models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
14.10 Essay: The AD Curve and Equilibrium Expenditure
1) “When the price level increases, aggregate planned expenditure increases and
equilibrium expenditure increases.” Is the preceding statement correct or incorrect? Briely
explain your answer.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Written and oral communication
112
2) An increase in the price level shifts the aggregate planned expenditure curve downward
and results in a movement along the aggregate demand curve. Why does an increase in the
price level result in a shift in the aggregate planned expenditure curve rather than a
movement along it?
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Written and oral communication
3) What is the relationship between the aggregate planned expenditure curve and the
aggregate demand curve? Explain the relationship.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Written and oral communication
4) How does an increase in the price level afect the aggregate planned expenditure curve
and the aggregate demand curve?
Skill: Level 2: Using deinitions
Section: Checkpoint 14.4
Status: Old
AACSB: Relective thinking
113