AD shocks change the equilibrium level of income(Y)and price(P). But the division of effects between P and Y depends on the shape of the SRAS curve. Using graphs show us what happens to P,Y and the size of multiplier when 1. SRAS is upward sloping 2. SRAS is upward sloping and flatter 3. SRAS is upward sloping and steeper

AD shocks change the equilibrium level of income(Y)and price(P). But the division of effects between P and Y depends on the shape of the SRAS curve. Using graphs show us what happens to P,Y and the size of multiplier when 1. SRAS is upward sloping 2. SRAS is upward sloping and flatter 3. SRAS is upward sloping and steeper

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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AD shocks change the equilibrium level of income(Y)and price(P). But the division of effects between P and Y depends on the shape of the SRAS curve. Using graphs show us what happens to P ,Y and the size of multiplier whena. SRAS is upward slopingb. SRAS is upward sloping and flatterc. SRAS is upward sloping and steeperd. SRAS is verticale. SRAS is horizontal
Answer the following questions, which relate to the aggregate expenditures model: Instructions: Enter your answer as a whole number. a. If Ca is $100, lg is $50, X, is -$10, and Gis $30, what is the economy's equilibrium GDP? 2$ b. If real GDP in an economy is currently $20o, Ca is $100, lg is $50, X, is -$10, and Gis $30, will the economy's real GDP rise, fall, or stay the same? |(Click to select) c. Suppose that full-employment (and full-capacity) output in an economy is $200. If Cą is $150, Ig is $50, Xn is -$10, and Gis $30, what will be the macroeconomic result? O There will be an inflationary expenditure gap and employment levels will be above the full-employment level. O There will be an inflationary expenditure gap and employment levels will be below the full-employment level.
THE AGGREGATE EXPENDITURE MODEL (IN THE SHORT RUN)YOU MUST SHOW YOUR CALCULATIONS IN THE SPACE BELOWFOR THE NEXT PROBLEM USE THE FOLLOWING FORMULA:CHANGE IN GDP = [ 1 / (1-MPC) ] * CHANGE IN GInitially, the economy is producing $13 trillion in goods and services and the government is spending $2 trillion.Then the government decides to increase its spending to $2.7 trillion. Compute the new equilibrium level of output. Assume that the marginal propensity to consume is 0.7 (MPC=0.7).
Consumption = 115 + 0.6YInvestment = 550Use the above information to answer the questions that follow:Q.4.1 Calculate the value of autonomous spending. Q.4.2 Calculate the value of the multiplier. Q.4.3 Calculate the equilibrium level of income. Q.4.4 Is the equilibrium level of income also the full employment level of income? Explainyour answer.Q.4.5 Identify any three non‐income determinants of consumption.
The following questions refer to this table: a.At each level of output, calculate saving. At each level of out-put, calculate unplanned investment (inventory change).What is likely to happen to aggregate output if the economyproduces at each of the levels indicated? What is the equilib-rium level of output?b.Over each range of income (2,000 to 2,500, 2,500 to 3,000, andso on), calculate the marginal propensity to consume. Calculatethe marginal propensity to save. What is the multiplier?c.By assuming there is no change in the level of the MPC andthe MPS and planned investment jumps by 200 and is sus-tained at that higher level, recompute the table. What is thenew equilibrium level of Y? Is this consistent with what youcompute using the multiplier?
The Life-Cycle/Permanent Income Model of Consumption makes a different prediction from the Keynesian Model, about how Consumption reacts to an increase in current income. Which of the following is the best description of the difference? O In the Keynesian Model, consumers will increasktheir spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will not increase their spending by much unless they believe that the increase in their income is permanent. O In the Life-Cycle/Permanent Income Model, consumers will increase their spending by the mpc times the increase in income. In the Keynesian Model, consumers will only increase their spending if they believe that the increase in their income is temporary. O In the Keynesian Model, consumers will increase their spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will only increase their spending if they believe that the increase in their income…
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AD shocks change the equilibrium level of income(Y)and price(P). But the division of effects between P and Y depends on the shape of the SRAS curve. Using graphs show us what happens to P ,Y and the size of multiplier whena. SRAS is verticalb. SRAS is horizontal
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Derive the consumption function and use this relation in the aggregate demand function to derivean equation for the equilibrium in the goods market . Why the AD line is upward sloping?Suppose the government spending falls by 100 and in this case marginal propensity to consumeis 0.8. what is the value of change in output. Draw a diagram to show the shift in AD line due tothis change in government spending and output.