Question

 1. What government agency measures US GDP?

 2. Who wrote The General Theory of Employment, Interest and Money?

 3. Variables measured at a point in time are called what?

 4. Which is the most volatile of the 4 expenditure components of US GDP?

 5. For the US, which is the smallest of the 4 expenditure components?

 6. What are the two main endogenous variables in the IS-LM model?

 7. If the MPS is .25 find the simple expenditure multiplier.

 8. If the simple multiplier is 2 in size, find the MPC.

 9. What is a good synonym for investment spending?

 10. What are the two phases of a business cycle?

Answer 1

1. Under the Department of Commerce of US, the Bureau of Economic Analysis (BEA) measures the GDP of US

2. The General Theory of Employment, Interest, and Money was written by John Maynard Keynes. It was published in 1936 just after the meltdown of the Great Depression. JM Keynes is considered as the Father of Economics.

3. Variables that are measured at a specific point in time are called Stock Variables. Examples are wealth of a person, population etc.

Variables that are measured during a period of time are called Flow Variables. Examples are profits, deficits etc.

4. Following are the four components of US GDP

Government Spending, Consumption Expenditure, Investment Spending and Net Exports.

Out of these 4, Investment Spending is the most volatile.

5. Following are some facts and figures based on 2018 data:

US GDP is 69% Consumption expenditure

18% investment spending, 17 % government spending and -5% Net Exports.

So, we can say that Net Exports are the smallest component of US GDP.

6. Endogenous Variables are those variables whose values are determined from inside the model.

The two main endogenous variables are Investment and Interest Rate.

Other Variables include Output and Consumption.

7. Expenditure Multiplier = 1 / 1-MPC

Now, MPC + MPS =1

MPC = 1 - .25 = .75

So, Expenditure Multiplier = 1 / 1-MPC

= 1 / .25 = 4

8. Multiplier = 1 / 1-MPC

2 = 1 / 1-MPC

2(1-MPC) = 1

1-MPC = .5

MPC = .5

9. Following can be some good synonyms for investment spending:

Asset, Expenditure, Money spent on Capital Goods

10. Prosperity and Depression are two important phases of the business cycle. Under these following sub-phases operates:

Expansion, Peak, Recession, Trough, Recovery