Consider a hypothetical closed economy in which there are no income taxes. If households spend $0.75 of each additional dollar they earn and save the remainder, the expenditure multiplier for this economy is The following graph shows the initial aggregate demand (AD) and short-run aggregate supply (SRAS) curves of this economy. Suppose that the economy is currently in a recession. Business firms are pessimistic about the future and do not respond to a fall in interest rates. In addition, all households are pessimistic about job prospects and desire to consume less and save more at all levels of income. As a result, personal consumption in this economy decreases by $1 billion. The reduction in personal consumption will lead to a decrease in aggregate demand by S billion. Shift either the AD curve or the SRAS curve, or both, to show the new aggregate demand curve after the full impact of the multiplier process of the reduction in personal consumption has taken place. ?

Consider a hypothetical closed economy in which there are no income taxes. If households spend $0.75 of each additional dollar they earn and save the remainder, the expenditure multiplier for this economy is The following graph shows the initial aggregate demand (AD) and short-run aggregate supply (SRAS) curves of this economy. Suppose that the economy is currently in a recession. Business firms are pessimistic about the future and do not respond to a fall in interest rates. In addition, all households are pessimistic about job prospects and desire to consume less and save more at all levels of income. As a result, personal consumption in this economy decreases by $1 billion. The reduction in personal consumption will lead to a decrease in aggregate demand by S billion. Shift either the AD curve or the SRAS curve, or both, to show the new aggregate demand curve after the full impact of the multiplier process of the reduction in personal consumption has taken place. ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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#1 Consider an economy defined by the following (in $billions and price level is fixed): C = 25+ 0.6YD T = 10+ 0.15Y 1 = 30 G = 40 X = 15 M = 0.01Y a) What is the marginal propensity to spend and what is the aggregate expenditure multiplier?
This question has four parts, here is the fourth and final part. 1.4. Create a graph for the aggregate expenditures (AE) model in Excel using the data from Table 1: A Private Closed Economy. (table 1 is in the attachment) tips: Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real GDP can affect business inventories which will affect future levels of real GDP. Aggregate expenditure and GDP are both function of consumption, investment, government spending, and net exports. So, the equations for the two are identical: Y = C + I + G + NX, and AE (aggregate expenditure) = C + I + G + NX For private closed economy the equation is: Y = C + I , and AE (aggregate expenditure) = C + I
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The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy. Suppose the governments of two very similar economies, economy N and economy M, implement a tax cut of equal size. The tax cut in economy N is permanent, while the tax cut in economy M is temporary. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (temporary tax cut/permanent tax cut) .
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