Q: Question 2 The IS-curve with the multiplier Y=¹[a b(rt-F)] ______ the baseline IS-curve Ỹ = a −b(rt…
A: 2) IS curve shows the negative or inverse relationship between income or GDP and interest rate.
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Q: If the marginal propensity to consume (MPC) increases. A. The MPS increases B. The multiplier…
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Q: THE AGGREGATE EXPENDITURE MODEL (IN THE SHORT RUN)YOU MUST SHOW YOUR CALCULATIONS IN THE SPACE…
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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 when
a. SRAS is vertical
b. SRAS is horizontal
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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 when 1. SRAS is upward sloping 2. SRAS is upward sloping and flatter 3. SRAS is upward sloping and steeper 4. SRAS is vertical 5. SRAS is horizontal ->Assume that the marginal propensity to consume is 0.75 and that taxes are exogenous. Imagine that government expenditure increases by $10m. Begin by assuming that the interest rate and prices stay fixed. 1. What is the value of the aggregate expenditure multiplier (k)? 2. How would the change be represented in an AD-AS diagram? 3. How would the change differ if the interest rate could change (assuming prices remain fixed)? 4. How would the change differ if the price level could also change?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).
- Consider the table on the right, which shows business investment in inventories for each quarter from the first quarter of 2007 to the first quarter of 2012, measured in millions of 2007 dollars. Provide a macroeconomic explanation for this pattern. (Hint: When did the recession during this period begin and end?) The negative growth of inventories indicates a period of OA. inflation since inventories needed to be reduced in the face of increasing storage cost OB. recession because demand was met by drawing down past inventories and production did not increase. OC. recovery since inventories needed to be used to meet demand. OD. recession because inventories increased due to lack of demand Year 2007 2008 2009 2010 2011 2012 2013 Quarter Q1 308889 Q2 Q3 Q4 R288828 Q1 Q2 Q3 Q4 Q1 228892889 Q2 Q3 Q4 Q1 Q2 Inventory Investment (millions of 2007 dollars) $3360 - 2822 15,570 19,644 6061 9512 11,856 4699 -2364 7779 -4807 - 4807 2663 2508 4841 -6805 8965 12,153 6462 2179 2061 7298 14,091 3875…Now suppose I (inventories) decreases by $80 billion as a result of a macroeconomic shock. Modify your macroeconomic model to reflect this change ceteris paribus and answer the following questions (questions 21 - 25). - At GDP of 7400 1. Inventories are in surplus by 80 2. Inventories are in shortage by 80 3. Equilibrium is achieved by the macroeconomy according to the Keynesians 4. Inventories are in surplus by 160 - At GDP of 9000 1. Inventories are in surplus by 80 2. Inventories are in shortage by 320 3. Equilibrium is achieved by the macroeconomy according to both the Keynesian and Neoclassical economists 4. Inventories are in surplus by 160 - At GDP of 8200 1. Inventories are in surplus by 80 2. Inventories are in shortage by 320 3. Equilibrium is achieved by the macroeconomy according to both the Keynesian and Neoclassical economists 4. Inventories are in shortage by 4000 - At GDP of 8200 1. Inventories are in surplus by 80 2. Inventories are in shortage by 320 3.…For each the following economies, calculate equilibrium Y*, the multiplier, and the size of the recessionary or inflationary gap, if any. a. AE= 250 +.75 Y Yf= 1200 b. AE= 400+ .9 Y Yf= 3000 c. AE= 300 +. 8Y Yf=1500 d. AE= 300+ .67 Y Yf=1000
- 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.3. The Keynesian and classical views of aggregate supply Complete the following table by matching the macroeconomic assumptions about aggregate supply to the appropriate school of thought. Assumption Product prices and wages tend to be inflexible. Only an increase in aggregate demand can move an economy out of a recession and back to potential real GDP quickly. The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves for a hypothetical economy that is currently in macroeconomic equilibrium at its full-employment output level. The aggregate supply curve (AS) in this diagram is consistent with the view of aggregate supply. Classical Keynesian Suppose consumers become unusually pessimistic about future economic conditions, causing consumption spending to decline. Shift the appropriate curve on the graph to illustrate the impact of the decrease in consumption. OConsidering the growing potential threat of terrorists’ attacks worldwide, the President of an economyapproved a fiscal spending of $24 billion to upgrade its national defense. a. Starting in a long-run equilibrium, draw a well-labelled AD-SRAS-LRAS diagram for the economy. b. Use the same diagram in part (a) to show the SR effect on the economy’s GDP (Y), the price level, andunemployment when the federal government increases its spending on national defense. c. To stabilize the price level and the economy’s GDP, what kind of monetary policy should the economyadopt? Illustrate your answer in the same diagram in (a).
- Assume you have the following model of the expenditure sector:AD = C + I + G + NX C = Co + cYD YD = Y - TA + TR TA = TAo TR = TRo I = Io G = Go NX = NXo a. If a change in income by ∆Y = - 800 leads to a change in savings by ∆S = - 160, what is the size of the expenditure multiplier? c. If a change in exports by NX = - 200 is accompanied by a change in consumption by ∆C = - 800, what is the size of the expenditure multiplier?х, х* A v P v Av Normal No Spacing Heading 1 Heading 2 Styles Pane U v ab Dicta Reading the following paragraph has a multiplier occurred and how is this shown on the aggregate demand model or IS curve model? New Delhi has also devised a complex scheme to permit central government employees, public sector bank staff, and staff of state-owned enterprises to use money allocated for home leave and other holiday travel to instead purchase consumer goods. Aggregate demand model for India's economy IS curve model for India Y = AD Interest rate Aggregate demand (AD) $billions AD = C + I + G + ( X -M) Where C=a +b (1-t)Y R IS 45° Y1 Output(Y) $Billions Output (Y) $billions O Focus 目 English (United Kingdom)Name some factors that could cause the SRAS curve to shift, and say whether they would shift SRAS to the right or to the left.
