Download 1. If actual investment is greater than planned investment - E-SGH

Macroeconomics I
Leakages and injections
Mar, 14th, 2017
Problem 1 (Sloman and Smith)
What is the impact of the following events on leakages and injections:
a) The government raises tax allowance (leakage/injection) (increase/decrease)
b) The government cuts spending on roads (leakage/injection) (increase/decrease)
c) Firms borrow more money in order to build up their stocks in preparation for an anticipated rise
(leakage/injection) (increase/decrease)
d) A depreciation in the exchange rate affects the popularity of holidays abroad. (leakage/injection)
(increase/decrease)
e) Saving is affected by a redistribution of income from the rich to the poor. (leakage/injection)
(increase/decrease)
f) Consumers demand more goods that are domestically produced (but total consumption does not change).
(leakage/injection) (increase/decrease)
g) People invest more money in building societies. (leakage/injection) (increase/decrease)
Problem 2 (Sloman and Smith)
We consider a small economy:
Savings (S)
Domestic consumption (C) Direct tax income (Td)
200
1550
750
Imports (Z)
Exports (X)
Government spending (G)
600
850
900
What is the value of leakages? What is the aggregate demand?
Indirect tax income (Te)
475
Domestic investment (I)
575
Problem 3 (W/B)
In a closed economy with no government, planned consumption is 150, planned investment is 50 and total
production is 210.
a) How much is total planned expenditure?
b) Calculate unplanned stock changes.
c) How much is savings in this situation?
d) What is actual investment?
e) How would you expect producers to react to this situation in the next period?
Problem 4
Calculate savings over investment surplus in case in which budget deficit is 300, imports is 1500 and exports is
1400.
True or false questions
1.
2.
3.
4.
5.
If actual investment is greater than planned investment, unplanned inventories decline.
Firms react to an unplanned inventory investment by increasing output.
Firms react to negative inventory investment by increasing output.
If planned saving exceeds planned investment, injections are greater than leakages.
If planned investment increases, equilibrium will be restored only when saving has increased
by exactly the amount of the initial increase in planned investment, assuming there is no
government or foreign sector.
6. When aggregate expenditure is greater than aggregate output, there will be an unplanned
buildup of inventories.
7. When there is an unplanned draw down of inventories, firms will increase production.
8. Actual investment equals planned investment plus unplanned changes in inventories
9. When a closed economy without a government is in equilibrium, planned saving equals
planned investment.
10. If aggregate expenditure decreases, then equilibrium output increases.
Adam Czerniak, Ph.D.
Department of Economics II
Multiple-choice questions
1. Which of the following is NOT considered investment?
a) The acquisition of capital goods.
b) The purchase of government bonds.
c) The increase in planned inventories.
d) The construction of a new factory.
2. If planned investment exceeds actual investment,
a) there will be an accumulation of inventories.
b) there will be no change in inventories.
c) there will be a decline in inventories.
d) none of the above
3. Net exports of goods and services is equal to the value of:
a) exports plus the value of imports.
b) imports minus the value of exports.
c) domestic consumption minus the value of imports.
d) exports minus the value of imports.
4. Total expenditure in an open economy is equal to consumption plus investment:
a) plus government expenditure on goods and services plus imports of goods and
services.
b) minus government expenditure on goods and services minus imports of goods
and services.
c) plus government expenditure on goods and services plus exports of goods and
services.
d) plus government expenditure on goods and services plus exports of goods and
services minus imports of goods and services.
5. The relationship between real GDP and potential GDP over the business cycle can be
best summarized by which of the following statements?
a) Real GDP fluctuates around potential GDP.
b) Real GDP is always equal to potential GDP.
c) Real GDP cannot be greater than potential GDP.
d) Real GDP cannot be less than potential GDP.
6.
In macroeconomics, equilibrium is defined as that point at which:
a) saving equals consumption.
b) planned aggregate expenditure equals aggregate output.
c) planned aggregate expenditure equals consumption.
d) aggregate output equals consumption minus investment.
7. If aggregate output is greater than planned spending, then:
a) unplanned inventory investment is zero.
b) unplanned inventory investment is negative.
c) unplanned inventory investment is positive.
d) actual investment equals planned investment.
8. A decrease in planned investment causes:
a) output to increase.
b) output to decrease, but by a smaller amount than the decrease in investment.
c) output to decrease, but by a larger amount than the decrease in investment.
d) output to decrease by an amount equal to the decrease in investment.
Adam Czerniak, Ph.D.
Department of Economics II
9. Which of the following is NOT considered investment?
a) The acquisition of capital goods.
b) The purchase of government bonds.
c) The increase in planned inventories.
d) The construction of a new factory.
10. Net exports of goods and services is equal to the value of:
a) exports plus the value of imports.
b) imports minus the value of exports.
c) domestic consumption minus the value of imports.
d) exports minus the value of imports.
Adam Czerniak, Ph.D.
Department of Economics II