EC140 - Midterm 1 (CHAPTER 21) questions with accurate answers (verified) graded A+

Suppose aggregate output is demand−determined. If the simple multiplier is 4 and there is a $10 billion increase in planned investment spending, then equilibrium income will ________ and the marginal propensity to spend must equal ________ - Answers-increase by $40 billion; 0.75 In a simple macro model, an increase in households' wealth is generally assumed to - Answers-cause an upward shift in the aggregate consumption function The consumption function is based on the assumption that as real disposable income rises, aggregate desired consumption - Answers-and desired saving will both rise Consider the following aggregate expenditure function: AE = $300 billion + (0.87)Y. Assuming that we have no government, no international trade and desired investment is autonomous and is equal to $56 billion, then which of the following is the correct statement of the consumption function? - Answers-C = $244 billion + (0.87)Y