a) Given the following values of consumption, investment, and government purchases (all in (in millions of $) at three point of Real GDP, calculate (in millions of $) and plot the Total Expenditures curve. Real GDP Consumption Investment Government Purchases Total Expenditure Q1 600 50 200 Q2 750 80 400 Q3 1000 100 600 b) On the same diagram, draw the TP curve. Explain the reason behind the shape and position of the TP curve. c) Given, optimal inventory is $500 million worth of goods, TE = $2000 million worth of goods and TP = $2300 million worth of goods, how will the economy adjust to achieve equilibrium?
a) Given the following values of consumption, investment, and government purchases (all in (in millions of $) at three point of Real
|
Real GDP |
Consumption |
Investment |
Government Purchases |
Total Expenditure |
|
Q1 |
600 |
50 |
200 |
|
|
Q2 |
750 |
80 |
400 |
|
|
Q3 |
1000 |
100 |
600 |
|
b) On the same diagram, draw the TP curve. Explain the reason behind the shape and position of the TP curve.
c) Given, optimal inventory is $500 million worth of goods, TE = $2000 million worth of goods and TP = $2300 million worth of goods, how will the economy adjust to achieve equilibrium?
d) Assume the economy is in recessionary gap. On the same diagram you in part a), show this case. If the government intervenes using fiscal policy, what sort of policy would they use? Which curve would they shift and why? Draw this shift on the same diagram.
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