Answer to Question #137201 in Macroeconomics for December

Question

24. If output remains the same, a change in nominal GDP from 2018 to 2019 represents…

[1] economic growth.

[2] an increase in unemployment.

[3] an increase in production.

[4] an increase in the price level.

25. Which one of the following statements is correct regarding consumption and saving in the

Keynesian model?

[1] If total consumption exceeds total income, this is an indication of dissaving.

[2] If the initial income is zero, then total consumption will be equal to total saving.

[3] Given that income does not decrease, a decrease in consumer spending will result in a proportional decrease in saving.

[4] If autonomous consumption increases, consumer spending will remain the same, ceteris paribus.

Answer 1

24.If output remains the same, a change in nominal GDP from 2018 to 2019 represents an economic growth.

Prove:

nominal GDP could increase for two reasons: 1) because production has increased and 2) because the prices at which the goods and services are sold in the marketplace have increased. ... Then we measure inflation, not an increase in production. To capture only the change in production, we look at the real GDP growth

25. If autonomous consumption increases, consumer spending will remain the same, ceteris paribus.

Prove:

Keynesian economics is based on two main ideas. First, aggregate demand is more likely than aggregate supply to be the primary cause of a short-run economic event like a recession. Second, wages and prices can be sticky, and so, in an economic downturn, unemployment can result.