(a) Suppose the price level in an economy rises while the money wage rate remains constant. What happens to the quantity of real GDP supplied. How will this affect the aggregate supply or aggregate demand curve? What if the potential GDP increases? Which aggregate curve is affected and how?
(a) Suppose the price level in an economy rises while the money wage rate remains constant. What happens to the quantity of real GDP supplied. How will this affect the aggregate supply or aggregate demand curve? What if the potential GDP increases? Which aggregate curve is affected and how?
Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:William J. Baumol, Alan S. Blinder
Chapter8: Aggregate Demand And The Powerful Consumer
Section: Chapter Questions
Problem 8DQ
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Question
![(a) Suppose the price level in an economy rises while the money wage rate remains constant. What happens to the quantity of real GDP supplied. How will this affect the
aggregate supply or aggregate demand curve? What if the potential GDP increases? Which aggregate curve is affected and how?
(b)
Planned
Real GDP Consumption Investment
$1,000
$100
1,900
100
2,800
100
3,700
100
$1,000
2,000
3,000
4,000
Government
Purchases Net Exports
$150
-$50
150
-50
150
-50
150
-50
From the table data provided, answer the following questions. The numbers in the table are in billions of dollars. Show all calculations.
a. What is the equilibrium level of real GDP?
b. What is the Marginal Propensity to Consume?
c. What is the multiplier value in this economy?
d. If potential GDP is $4,000 billion, is the economy at full employment? If not, what is the condition of the economy?
e.
If the economy is not at full employment, by how much should government spending increase so that the economy can move to the full employment level of GDP?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Faad2efa2-61e1-4cb8-b198-e797c7d9dc43%2F56629813-c967-4894-a665-00616f6fa16c%2Fibbgo55_processed.png&w=3840&q=75)
Transcribed Image Text:(a) Suppose the price level in an economy rises while the money wage rate remains constant. What happens to the quantity of real GDP supplied. How will this affect the
aggregate supply or aggregate demand curve? What if the potential GDP increases? Which aggregate curve is affected and how?
(b)
Planned
Real GDP Consumption Investment
$1,000
$100
1,900
100
2,800
100
3,700
100
$1,000
2,000
3,000
4,000
Government
Purchases Net Exports
$150
-$50
150
-50
150
-50
150
-50
From the table data provided, answer the following questions. The numbers in the table are in billions of dollars. Show all calculations.
a. What is the equilibrium level of real GDP?
b. What is the Marginal Propensity to Consume?
c. What is the multiplier value in this economy?
d. If potential GDP is $4,000 billion, is the economy at full employment? If not, what is the condition of the economy?
e.
If the economy is not at full employment, by how much should government spending increase so that the economy can move to the full employment level of GDP?
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