What happens in the simple Keynesian model if households expect lower income in the future and decide to save more today? Adjust the graph and answer the question. Assume that investment varies directly with aggregate income. Aggregate expenditure (in billions of dollars) 10 9 8 7 6 5 4 3 0 0 1 2 3 4 5 6 7 Aggregate income (in billions of dollars) 8 AE = AI C +1 9 10

What happens in the simple Keynesian model if households expect lower income in the future and decide to save more today? Adjust the graph and answer the question. Assume that investment varies directly with aggregate income. Aggregate expenditure (in billions of dollars) 10 9 8 7 6 5 4 3 0 0 1 2 3 4 5 6 7 Aggregate income (in billions of dollars) 8 AE = AI C +1 9 10

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter23: The Aggregate Expenditure Model

Section: Chapter Questions

Problem 4P

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Similar questions

Aggregate Expenditure(in millions of dollars) What happens in the simple Keynesian model below if households expect lower income in the future and decide to save more today? Use the line mover tool to adjust the graph and then answer the question below. (Assume that investment varies directly with aggregate income.) 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 AE = Al C+1 0 0 1000 2000 3000 4000 5000 6000 7000 8000 900010000 Aggregate Income(in millions of dollars) What happened to output, income, and savings, as a result? What do economists call this phenomena? The decrease in consumption shifts the spending curve down, resulting in a lower level of output, income, and savings. Economists refer to the intended decrease in savings that results in a decrease in overall savings as the paradox of thrift. Output and income increase as a result of the decrease in consumption. In addition, savings will decrease when income increases. Economists refer to this as the paradox of thrift.…
What is the Euler equation for consumption, and what is its economicinterpretation?
Assume the following model of the expenditure sector: S=C+I+G+Nx TR=100 C=420+(4/5)YD I=160 G=180 Nx=-40 YD=Y+TR-TA TA=(1/6)Y If the government would like to increase the equilibrium level of output (Y) to the full employment level Y*=2,700, by how much should government purchases (G) be changed?
10 . In the “complete Keynesian model”, the investment functions was I = I0 - f(i). An analyst now proposes the following investment function: I = I0 - f(i) + qY, where “q” is a parameter and Y is national income = GDP. Provide two different arguments, i.e. explanations as to why this investment function makes sense. The focus is on the new term, qY (q times Y), in the function.
If all 110 million households spent the same additional dollars on appliances, electronics, and furniture as the sample 30,000 rebate receiving households did so, how much did aggregate consumption increase?
To graphically represent this, you can create a simple Keynesian cross diagram. On the vertical axis, plot the national income (Y), and on the horizontal axis, plot the aggregate expenditure (C + I + G). The equilibrium point will be where the aggregate expenditure line intersects the 45-degree line representing national income. also add explanation
To graphically represent this, you can create a simple Keynesian cross diagram. On the vertical axis, plot the national income (Y), and on the horizontal axis, plot the aggregate expenditure (C + I + G). The equilibrium point will be where the aggregate expenditure line intersects the 45-degree line representing national income. add explanation
Assume you have the following model of the expenditure sector: AD = C + I + G + NX C = Co + cYD YD = Y - TA + TR TA = TAo TR = TRo I = Io G = Go NX = NXo If a change in taxes by ∆TA = - 400 leads to an change in income by ∆Y = + 1,200, how large is the marginal propensity to save?
Calculate autonomous spending with the given info C = 400 + 0.6Y
Disposable Consumption income expenditure (€, thousands) (€, thousands) 200 220 300 300 400 380 500 460 According to the data in the above table, calculate the marginal propensity to consume (MPC). Give only a numerical answer. Where needed, use only a point (.) for decimals (e.g., 3.25, not 3,25) and no thousands separator (e.g., 2000, not 2,000).
Assume you have the following model of the expenditure sector: AD = C + I + G + NX C = Co + cYD YD = Y - TA + TR TA = TAo TR = TRo I = Io G = Go NX = NXo If a change in exports by deltaNX = - 200 is accompanied by a change in consumption by ∆C = - 800, what is the size of the expenditure multiplier?
Using the income-expenditure model, what is the expected effect (increase, decrease, or no effect) of an increase in inventories on next period real GDP levels?