In the Keynesian income-expenditure model, equilibrium income is necessarily equal to a multiple ofGroup of answer choicesthe autonomous component of consumption, regardless of whether the economy is closed or openthe exogenous component of planned aggregate expenditurethe marginal propensity to consume minus the sum of the marginal tax rate and marginal propensity to importnone of the other alternatives are correct.
Question
In the Keynesian income-expenditure model, equilibrium income is necessarily equal to a multiple ofGroup of answer choicesthe autonomous component of consumption, regardless of whether the economy is closed or openthe exogenous component of planned aggregate expenditurethe marginal propensity to consume minus the sum of the marginal tax rate and marginal propensity to importnone of the other alternatives are correct.
Solution
In the Keynesian income-expenditure model, equilibrium income is necessarily equal to a multiple of the exogenous component of planned aggregate expenditure.
Here's a step-by-step explanation:
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The Keynesian income-expenditure model is a macroeconomic model that focuses on the short-run relationship between total spending (aggregate expenditure) and total income (output).
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In this model, equilibrium is achieved when the total amount of output (income) produced and sold is equal to the total amount of output purchased. In other words, when planned aggregate expenditure equals actual aggregate income/output.
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The exogenous component of planned aggregate expenditure refers to the portion of total spending that is independent of the level of income. This includes autonomous consumption (consumption that occurs even when income is zero), investment, government spending, and net exports.
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The model assumes that as income increases, so does consumption – but not by as much. This is captured by the marginal propensity to consume (MPC), which is less than one. The rest of the increase in income goes into savings.
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Therefore, an increase in the exogenous component of planned aggregate expenditure leads to a multiplied increase in income. This is known as the multiplier effect. The size of the multiplier depends on the marginal propensity to consume.
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So, in the Keynesian income-expenditure model, equilibrium income is necessarily equal to a multiple of the exogenous component of planned aggregate expenditure.
Similar Questions
Consider a simple Keynesian model without government spending or taxation. Suppose autonomous consumption is 500 and autonomous investment is 300 and the equilibrium level of output is 2400. Then the marginal propensity to consume is: Group of answer choices2/33/53Uncertain, not enough information.
According to the “paradox of thrift”, for the simple Keynesian income-expenditure model where there is no government or external sector,Group of answer choicesthe equilibrium level of income will be increased as a result of an increase in the proportion of income which households wish to save, although aggregate saving will not increasejust as with an individual who increases the proportion of income they save, if all individuals do this aggregate saving will increasean increase in the proportion of income which individuals wish to save, without a change in the marginal propensity to consume will decrease the size of the income-expenditure multiplierin the aggregate an increase in the proportion of income which households wish to save will not increase aggregate saving if the level of investment is unchanged.
Adding an external sector to the Keynesian income-expenditure model implies that for equilibrium, in terms of leakages and injectionsGroup of answer choicesplanned saving must equal planned investmentplanned saving must equal planned investment, government expenditure must equal total taxation and exports must equal imports it is not necessary for planned saving and planned investment to be equal but exports must be equal to imports it is not necessary for planned saving and planned investment to be equal but they are unequal then either the budget or the trade balance or both should not be equal to zero.
In the open-economy Keynesian income-expenditure model which includes a government sector with endogenous taxation, which of the following statements could apply to the process of adjustment towards an equilibrium?Group of answer choicesAn increase in government expenditure, without any changes in investment or exports must generate a matching change in the sum of saving, taxation and imports.An increase in investment by itself will generate a rise in saving, imports and taxation via changes in the level of income.An increase in injections would cause a matching increase in withdrawals because of the resulting change in the level of income occurring through the multiplier.All of the other statements are correct.
Consider a simple Keynesian model with taxation. Suppose the marginal tax rate is t = 0.4 and the marginal propensity to consume is c = 0.66. Then an exogenous increase in investment demand of 100 units will: Group of answer choicesIncrease equilibrium output by approximately 150 unitsIncrease equilibrium output by approximately 167 unitsIncrease equilibrium output by approximately 267 unitsIncrease equilibrium output by approximately 750 units
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