KEYNESIAN MODEL (ECONOMICS)

UNDER: In the Keynesian model, government expenditure

• increases with investment because investment increases the size of the tax base.

• is determined by the level of tax revenue.

• is undertaken solely to regulate the level of spending.

• is taken to be autonomous because it is subject to government policy.

UNDER: In the Keynesian model, tax revenue

• is taken into account through its effect on consumption.

• is taken to be fixed because government expenditure is taken to be fixed.

• reduces equilibrium income because it reduces autonomous spending.

• does not appear in the aggregate expenditure function because it is always equal to government expenditure.

UNDER;In the Keynesian model, exports are taken to

• decrease when imports increase.

• be dependent on disposable income.

• increase when imports increase.

• be independent of local conditions.

UNDER;In the Keynesian model, exports

• depend on government policy.

• decrease when income decreases.

• remain unaffected by changes in output.

• increase when income increases.

EVAL: Assume that the full-employment income level is higher than the equilibrium income level.According to the Keynesian model, income can be increased if

• the level of government spending is increased.

• the level of spending on imports is increased.

• autonomous consumption decreases.

• exports decrease.

ANAL: In the Keynesian model, government expenditure

• can be ignored if it equals the level of taxation.

• affects the size of the multiplier because it varies with income.

• is taken to be independent of income because government decides on the level.

• is undertaken solely to regulate the level of unemployment.

ANAL: Suppose that autonomous taxes are $100 B and the marginal propensity to save out of disposable income is .2, what is the marginal propensity to consume out of national income?

• 1

• 2

• 4

• 8

Autonomous Consumption$150 Billion Autonomous Investment$ 50 B Autonomous Government Spending on Goods & Services$250 B Autonomous Exports$250 B Autonomous Imports$325 Marginal propensity to autonomous Taxes$100 B

APPL: Based on the above information, what is equilibrium national output and income equal to (approximately):

• 2850

• 2950

• 3750

• 4750

REM: In the simple Keynesian macro model developed in class, equilibrium income is that level of income that:

• generates enough exports to just equal imports.

• employs all of the economy's resources.

• generates enough consumption to equal savings.

• causes consumption spending to just equal output.

CREA: Suppose consumers show an increased preference for imported, rather than domestic, cars. Investigate or formulate what will happen.

• there will be a movement along the aggregate expenditures (AE) schedule.

• there will be an upward shift in the AE schedule.

• there will be a downward shift in the AE schedule.

• the marginal propensity to consume must increase.