lect 2

• The "Paradox of Thrift" states that the savings rate rises in recessions and falls in booms
• In the empirical example, autonomous consumption is 100.


  True
• The marginal propensity to save in the empirical example is 0.2
• What is the marginal propensity to consume in the empirical example?

  0.8
• Arrange the disposable income levels from lowest to highest in the consumption and saving schedules.

  1️⃣ 0

  2️⃣ 400

  3️⃣ 500

  4️⃣ 1000

  5️⃣ 1500
• What is the desired saving when disposable income is 1000?

  0
• In this model, investment is treated as an exogenous
• Investment depends only on expectations of future demand growth.

  False
• At equilibrium GDP, desired expenditure equals national output
• What is the numerical value of investment in this example?

  250
• In a closed economy with no government, what equals desired saving at equilibrium GDP?

  Desired investment
• Arrange the GDP levels from lowest to highest in the determination of equilibrium GDP example.

  1️⃣ 500

  2️⃣ 1000

  3️⃣ 1500

  4️⃣ 2000
• The aggregate expenditure curve intersects the 45-degree line at equilibrium GDP.


  True
• What is the equilibrium GDP in the determination of equilibrium GDP example?

  1000
• Solve the model Y = C + I where C = a + bY for Y.

  Y = \frac{a + I}{1 - b}</latex>
• For GDP to remain unchanged, injections of spending must equal leakages
• What must be equal for GDP to remain unchanged in a closed economy?

  Injections and leakages
• The model for GDP is expressed as: Y = C + I
• What is the numerical value of equilibrium GDP when C = 100 + 0.8Y and I = 250?

  1750
• In equilibrium, saving equals investment in the numerical example provided.


  True
• What is the formula for the multiplier in the absence of taxes and foreign trade?

  $1 / (1 - b)$
• Order the effects on equilibrium GDP from changes in injections and withdrawals.

  1️⃣ Rise in injections or fall in withdrawals: Equilibrium GDP increases

  2️⃣ Fall in injections or rise in withdrawals: Equilibrium GDP decreases
• When investment rises from 250 to 350, the new level of GDP is 2250
• What is the total income generated from an initial increase of £100 in exogenous spending when the MPC is 0.8?

  £500
• The multiplier effect converges because each subsequent round of spending generates less income.


  True
• In a closed economy with three industries, the value of GDP is £43000 million.
• What is the primary reason for aggregate demand failure according to Keynesian economics?

  Inadequate aggregate spending
• Match the macroeconomic concepts with their descriptions:

  Marginal propensity to consume (MPC) ↔️ Responsiveness of consumption to income

  Exogenous variable ↔️ Determined outside the model

  Autonomous consumption ↔️ Consumption when income is zero

  Multiplier ↔️ Effect of autonomous expenditure on GDP
• The Keynesian solution to aggregate demand failure involves government spending and tax changes.


  True
• The marginal propensity to save is equal to 1 minus the marginal propensity to consume.

  True
• What is autonomous consumption in the relation C = a + bY?

  The value of a