Question 2 Refer to the information provided in Figure 23.9 below to answer the question(s) that follow. Aggregate expenditures ($ millions) 225 200 175 150 AE 45% 300 100 200 Aggregate output ($ millions) Figure 23.9 a) Refer to Figure 23.9. Write the equation for the aggregate expenditure function (AE). Show your work. b) Refer to Figure 23.9. What is the equilibrium level of output in this economy? State the equilibrium condition used to determine this. c) Explain the forces that maintain/drive the economy to this equilibrium by considering what will happen at the following two levels of output, $300 million and $100 million. You will need to discuss changes in investment through unplanned inventories and the response of output. How will equi

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Question 2
Refer to the information provided in Figure 23.9 below to answer the question(s) that follow.
Aggregate expenditures
($ millions)
225
200
175
150
45°
AE
100
200
300
Aggregate output ($ millions)
Figure 23.9
a) Refer to Figure 23.9. Write the equation for the aggregate expenditure function (AE). Show
your work.
b) Refer to Figure 23.9. What is the equilibrium level of output in this economy? State the
equilibrium condition used to determine this.
c) Explain the forces that maintain/drive the economy to this equilibrium by considering what
will happen at the following two levels of output, $300 million and $100 million. You will need
to discuss changes in investment through unplanned inventories and the response of output.
d) Refer to Figure 23.9. How will equilibrium aggregate expenditure and equilibrium aggregate
output change as a result of a decrease in investment by $20 million?
e)The interest rate is an exogenous factor that effects the level of investment in an economy. If
the interest rate decreased, explain what would happen to planned investment. How would you
change the AE line drawn in 23.9 to reflect this change? What would happen to equilibrium
output?
f) Explain what Keynes meant by the phrase "animal spirits." Would animal spirits change
the location of AE and equilibrium output in the graph above? If so, be specific in your
explanation of how each would change.
Transcribed Image Text:Question 2 Refer to the information provided in Figure 23.9 below to answer the question(s) that follow. Aggregate expenditures ($ millions) 225 200 175 150 45° AE 100 200 300 Aggregate output ($ millions) Figure 23.9 a) Refer to Figure 23.9. Write the equation for the aggregate expenditure function (AE). Show your work. b) Refer to Figure 23.9. What is the equilibrium level of output in this economy? State the equilibrium condition used to determine this. c) Explain the forces that maintain/drive the economy to this equilibrium by considering what will happen at the following two levels of output, $300 million and $100 million. You will need to discuss changes in investment through unplanned inventories and the response of output. d) Refer to Figure 23.9. How will equilibrium aggregate expenditure and equilibrium aggregate output change as a result of a decrease in investment by $20 million? e)The interest rate is an exogenous factor that effects the level of investment in an economy. If the interest rate decreased, explain what would happen to planned investment. How would you change the AE line drawn in 23.9 to reflect this change? What would happen to equilibrium output? f) Explain what Keynes meant by the phrase "animal spirits." Would animal spirits change the location of AE and equilibrium output in the graph above? If so, be specific in your explanation of how each would change.
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