CALIFORNIA STATE UNIVERSITY, SACRAMENTO
Department of Economics
Prof. A. R. Gutowsky
Economics 1A
Chapter 8
1. What are the components of aggregate demand?
Consumption
2. What are the determinants of consumption?
(A) What causes a movement along the
consumption schedule?
(B) What causes shifts in the consumption
schedule?
3. Read Policy Debate (page 152) and Why tax policy failed in 1975 (pages 152-53).
4. Answer Question 7-9 on page 155.
5. Given the following information:
Income Consumption Saving
800 600
900 660
1000
1100
1200
(A) Define terms: marginal propensity to
consume, marginal propensity to save
(B) What is the value of the marginal
propensity to consume (MPC)? marginal propensity to save (MPS)?
(C) Complete the above columns.
6. Define: autonomous spending, induced spending
(A) Which spending determines the slope of the
spending schedule?
(B) Which spending determines the intercept of
the spending schedule?
Chapter 9
Investment
1. What is the difference between real and financial investment?
2. What is the difference between net and replacement investment?
3. What are the determinants of investment?
Net Exports
4. Define the term: net exports:
5. What are the determinants of net exports?
Government Expenditures
6. What are the determinants of government expenditures?
(A) What are the components of government
budgetary spending?
(B) What are transfer payments?
7. Define the term: equilibrium.
8. What is the meaning of an equilibrium level of income or output?
(A) What is the meaning of the (equilibrium)
equation Q = D?
(B) What is the meaning of the following
behavioral equation D = C+ I + NX?
9. Given the following information:
Output Total Spending Consumption Investment
Government Net Exports
650
500
200
150 -50
750
550
850
950
1050
1150
(A) What is the value of the MPC?
(B) Complete the above columns.
(C) Add another column and label it Iu = Q - D,
i.e., undesired investment equals output minus total spending
(D) Diagram (not to scale) the above
information.
10. Given the following information:
C = 300 + .75Q
I = 400
G = 200
NX = 50
(A) What is the equilibrium level of output?
Government Taxes
11. What is the meaning of the equation: C = Y - T?
(A) What is an autonomous tax? Does it
determine the intercept or slope of the spending schedule? Explain.
(B) What is an induced tax? Does it determine
the intercept or slope of the spending schedule? Explain.
12. Derive the aggregate demand schedule (AD). Review page 172 to answer this question
since it will on a test.
13. What will cause a movement along the AD schedule?
14. What will cause the AD schedule to shift to the right? Left?
15. Does the following relationship: Q = D = QPOT always hold true? Explain.
(A) What is the relationship between the
equilibrium output level and potential output level?
16. Define a recessionary gap? Inflationary gap?
17. Answer questions 3 - 6, 8 - 9 on page 177
18. Answer questions 1, 2, 4, 5 (excluding (b)) on page 178.
Chapter 10
1. Define the term: multiplier.
2. Be sure to know the material on pages 180-184
3. What is the formula for the multiplier?
4 Given the following information:
MPC MPS Value of Multiplier
.9
.8
.75
.667
.5
.4
(A) Complete the above columns.
5. If autonomous spending changes by 10 and the MPC = .6, how much will output change?
6. If autonomous spending decreases by $ 20 and the MPS = .2, how much will output change?
7. If autonomous spending increases $ 50 and the MPC = .75, how much will output change?
8. Answer questions 2, 3, 5 on page 189.
9. Read the material on pages 190-192.
Induced Imports
(A) What does it mean to state that imports are induced?
(B) Know how to derive Figure 10-6 on page 191.
10. Answer questions 1-3 on page 193.
11. Given the following information:
C = 200 + .9(Q-T)
I = 400
G = 400
NX = 100
T = 300
(A) Solve for Q. What is the value of the
multiplier?
(B) Solve for the state of the budget (BUD = G
- T)
12. Repeat question 19 except assume that T = .2Q.
13. Repeat question 19 except NX = 100 - .1Q.
(A) What does this equation mean?