Answer to Question #219950 in Macroeconomics for vee

Question

1.In the Keynesian model, GDP is determined by...

[1] level of taxes. [2] price level. [3] level of aggregate spending. [4] level of aggregate supply.

 

2. At points above the 45° line in the aggregate spending function diagram...

[1] aggregate expenditure is in equilibrium. [2] aggregate spending is less than GDP. [3] aggregate spending is greater than GDP. [4] aggregate spending is equal to GDP

 

3. Which one of the following statements is incorrect regarding the Keynesian model with the government and foreign sector?

1] The change in the level of exports is dependent on the exchange rate, among others. [2] The change in the level of imports is dependent on the level of domestic income. [3] An increase in the marginal propensity to import would increase imports. [4] The greater marginal propensity to import is, the bigger the multiplier.

 

Answer 1

(1) [3] GDP is determined by the level of aggregate spending.

That is at the point where the aggregate expenditures in the economy are equal to the amount of output produced.

(2) [3] Aggregate spending is greater than GDP.

(3)[4] The greater marginal propensity is, the bigger the multiplier. This is not true.

When marginal propensity is great, the multiplier should be small.