Question

In: Economics

Point A on the graph represents the equality of capital expenditures and income. point where consumption...

Point A on the graph represents the

equality of capital expenditures and income.
point where consumption equals income.
competitive equilibrium.
point where the marginal propensity to consume equals 0.

  

  

  

(13)
According to the aggregate demand/aggregate supply curve, when prices rise,
businesses will cut back spending.
businesses will increase spending by the amount of the price increase.
businesses will increase spending by an amount less than the price increase.
business spending is unaffected.

  

  

  

(14)
___________ are leakages out of the circular flow model.
Exports
Government expenditures
Taxes
Business expenditures

  

  

  

(15)
In the classical view, the macroeconomy is much like the market for apples in the sense that supply and demand will adjust to establish an equilibrium.
true
false

  

  

  

(16)
During the Great Depression, output fell by 40% and unemployment hovered at 25%. According to the classical view of macroeconomics, what should have happened to reduce unemployment?
Wages should have fallen, increasing demand for labor.
Laborers should have switched industries, shrinking the ranks of the unemployed.
The demand for jobs should have resulted in an increase in the supply of jobs.
The excess supply of labor should have resulted in an increased demand for labor.

  

  

  

(17)
Which of the following statements is not true about the aggregate expenditures model (AE = C + I + G + NX)?
Consumer spending depends on consumer income.
Foreign spending depends on the exchange rate.
Government spending depends on the exchange rate.
Business spending depends on the interest rate.

  

  

  

(18)
If Sally’s consumption function is linear and her marginal propensity to consume is 0.8, this means that
Sally’s total spending cannot exceed 80% of her income.
Sally will spend at least 80% of her total income.
Sally will not save money regardless of her income.
Sally will begin to save at the point where her marginal income is equal to 0.8.

  

Solutions

Expert Solution

Q12). sorry the graph is not available on question.

so as per my teaching experience, the correct option is (b).

point where consumption equals income

Q13). The correct option is (a).

Businesses will cut back spending

because as the price rises economy will move upward along the aggregate demand curve. An increase in any of the components of aggregate demand shifts the AD curve to the right. When the AD curve shifts to the right it increases the level of production and the average price level. When an economy gets close to potential output , the price will  increase more than the output as the AD rises.

Q14). The correct option is (c)

Taxes.

In the circular flow model, injections into the economy include investment, government purchases, and exports while leakages include savings, taxes, and imports.

Q15). The correct option is

True.

The classical model of the economy is based on the assumption of full employment without inflation in the economy. In the classical view, economy automatically adjusts themselves through the interaction of demand and supply model.

Q16). The correct option is (a)

Wages should have fallen, increasing demand for labor.

There are several explanations for the so-called efficiency wage. It may also be that there’s a minimum wage law that puts a floor on how far wages can drop. It may also be that labor unions, through their strengths, keep wages above equilibrium.

Q17). The correct option is (c).

Government spending depends on the exchange rate.

The first factor is the size of the deficit the government has. This is essentially tax income minus spending; the larger the defcit the less likely the government is to spend. This means the second factor is how willing the government is to borrow, which increases the national debt.

Q18). The correct option is (a).

Sally’s total spending cannot exceed 80% of her income.

Consumption changes as income changes. Now, how much consumption changes in response to a given change in income depends upon the average and marginal propensity to consume. Thus, propensity to consume of a community can be known by the average and marginal propensity to consume.

Hope you got the answers.

Thanks.


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