The equilibrium point and reason for the great depression lasting for a long time.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 11, Problem 1CQ

To determine

The equilibrium point and reason for the great depression lasting for a long time.

Expert Solution & Answer

Explanation of Solution

According to Keynesian view, the equilibrium output is determined at the point where the aggregate planned expenditure is equal to the current output level. In addition, the equilibrium level of output is determined at less than full employment level of output.

During the great depression of 1930s, there was wage rigidity due to the union. Particularly, the wage rigidity was in terms of reducing wage. When the aggregate expenditure decreases, it leads to reduction in the sales and increase in the inventory. Since inventory increases, firms reduce output. The reducing output causes decrease in employment and income. When income decreases, reducing price of the good fails to increase the demand.

The decrease in aggregate expenditure reduces the aggregate demand. This in turn increases the inventory. Since actual inventory level is greater than equilibrium level, the firm reduces the output and does not increase the output even though the interest rate decreases.

Thus, the depression lasted for a long time period due to the wage rigidity and lower aggregate demand even when the rate of interest or price of the good had reduced.

Economics Concept Introduction

Aggregate expenditure: The aggregate spending or expenditure is the total spending on goods and services in an economy at a given time period. There are four components of the aggregate expenditure: consumption (C), planned investment (I), and government purchases (G), and net exports (NX).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

1. A firm has the following demand function: P = 60 – 0.5Q and its total cost is defined by TC= 13+ Qa. Find the maximum revenue b. Find the production to optimize the profit. c. Verify if the marginal revenue and marginal cost are the same at the profit-maximizing productionlevel. Exercise 6From the point of view of the firm, what decision criteria have been found relevant in the analysis ofproduction and profit? Provide two refernces with your answer.

5. Some people find options expensive and use more complex structures to reduce the cost. For example, consider buying a call with a strike of $55 and selling a call with a strike of $60. a. What is the cost of establishing this combined position? b. What is the payoff of the combined position if the market price goes to $60? c. What is the payoff of the combined position if the market price goes to $100?

3. An investor has $1,000 to invest. They believe the price of the underlier will increase to $60 within one year. a. How many shares of stock could they buy with the $1,000 at the current price of $50, and how much would they make if the share price increased to $60? b. How many calls with a strike of $55 could they buy for the same $1,000, and how much would they make if the share price increased to $60? c. How much would they make (or lose) from the stock and from the calls if the share price declined to $40? 4. What is the premium on a call with a strike of $0.01? Why is the premium so close to the $50 share price?

Answer 2

Question

Chapter 11, Problem 1CQ

To determine

The equilibrium point and reason for the great depression lasting for a long time.

Expert Solution & Answer

Explanation of Solution

According to Keynesian view, the equilibrium output is determined at the point where the aggregate planned expenditure is equal to the current output level. In addition, the equilibrium level of output is determined at less than full employment level of output.

During the great depression of 1930s, there was wage rigidity due to the union. Particularly, the wage rigidity was in terms of reducing wage. When the aggregate expenditure decreases, it leads to reduction in the sales and increase in the inventory. Since inventory increases, firms reduce output. The reducing output causes decrease in employment and income. When income decreases, reducing price of the good fails to increase the demand.

The decrease in aggregate expenditure reduces the aggregate demand. This in turn increases the inventory. Since actual inventory level is greater than equilibrium level, the firm reduces the output and does not increase the output even though the interest rate decreases.

Thus, the depression lasted for a long time period due to the wage rigidity and lower aggregate demand even when the rate of interest or price of the good had reduced.

Economics Concept Introduction

Aggregate expenditure: The aggregate spending or expenditure is the total spending on goods and services in an economy at a given time period. There are four components of the aggregate expenditure: consumption (C), planned investment (I), and government purchases (G), and net exports (NX).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 11, Problem 1CQ

To determine

The equilibrium point and reason for the great depression lasting for a long time.

Expert Solution & Answer

Explanation of Solution

According to Keynesian view, the equilibrium output is determined at the point where the aggregate planned expenditure is equal to the current output level. In addition, the equilibrium level of output is determined at less than full employment level of output.

During the great depression of 1930s, there was wage rigidity due to the union. Particularly, the wage rigidity was in terms of reducing wage. When the aggregate expenditure decreases, it leads to reduction in the sales and increase in the inventory. Since inventory increases, firms reduce output. The reducing output causes decrease in employment and income. When income decreases, reducing price of the good fails to increase the demand.

The decrease in aggregate expenditure reduces the aggregate demand. This in turn increases the inventory. Since actual inventory level is greater than equilibrium level, the firm reduces the output and does not increase the output even though the interest rate decreases.

Thus, the depression lasted for a long time period due to the wage rigidity and lower aggregate demand even when the rate of interest or price of the good had reduced.

Economics Concept Introduction

Aggregate expenditure: The aggregate spending or expenditure is the total spending on goods and services in an economy at a given time period. There are four components of the aggregate expenditure: consumption (C), planned investment (I), and government purchases (G), and net exports (NX).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 11, Problem 1CQ

To determine

The equilibrium point and reason for the great depression lasting for a long time.

Expert Solution & Answer

Explanation of Solution

According to Keynesian view, the equilibrium output is determined at the point where the aggregate planned expenditure is equal to the current output level. In addition, the equilibrium level of output is determined at less than full employment level of output.

During the great depression of 1930s, there was wage rigidity due to the union. Particularly, the wage rigidity was in terms of reducing wage. When the aggregate expenditure decreases, it leads to reduction in the sales and increase in the inventory. Since inventory increases, firms reduce output. The reducing output causes decrease in employment and income. When income decreases, reducing price of the good fails to increase the demand.

The decrease in aggregate expenditure reduces the aggregate demand. This in turn increases the inventory. Since actual inventory level is greater than equilibrium level, the firm reduces the output and does not increase the output even though the interest rate decreases.

Thus, the depression lasted for a long time period due to the wage rigidity and lower aggregate demand even when the rate of interest or price of the good had reduced.

Economics Concept Introduction

Aggregate expenditure: The aggregate spending or expenditure is the total spending on goods and services in an economy at a given time period. There are four components of the aggregate expenditure: consumption (C), planned investment (I), and government purchases (G), and net exports (NX).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 11, Problem 1CQ

To determine

The equilibrium point and reason for the great depression lasting for a long time.

Expert Solution & Answer

Explanation of Solution

According to Keynesian view, the equilibrium output is determined at the point where the aggregate planned expenditure is equal to the current output level. In addition, the equilibrium level of output is determined at less than full employment level of output.

During the great depression of 1930s, there was wage rigidity due to the union. Particularly, the wage rigidity was in terms of reducing wage. When the aggregate expenditure decreases, it leads to reduction in the sales and increase in the inventory. Since inventory increases, firms reduce output. The reducing output causes decrease in employment and income. When income decreases, reducing price of the good fails to increase the demand.

The decrease in aggregate expenditure reduces the aggregate demand. This in turn increases the inventory. Since actual inventory level is greater than equilibrium level, the firm reduces the output and does not increase the output even though the interest rate decreases.

Thus, the depression lasted for a long time period due to the wage rigidity and lower aggregate demand even when the rate of interest or price of the good had reduced.

Economics Concept Introduction

Aggregate expenditure: The aggregate spending or expenditure is the total spending on goods and services in an economy at a given time period. There are four components of the aggregate expenditure: consumption (C), planned investment (I), and government purchases (G), and net exports (NX).

Answer 6

Chapter 11, Problem 1CQ

To determine

The equilibrium point and reason for the great depression lasting for a long time.

Expert Solution & Answer

Explanation of Solution

According to Keynesian view, the equilibrium output is determined at the point where the aggregate planned expenditure is equal to the current output level. In addition, the equilibrium level of output is determined at less than full employment level of output.

During the great depression of 1930s, there was wage rigidity due to the union. Particularly, the wage rigidity was in terms of reducing wage. When the aggregate expenditure decreases, it leads to reduction in the sales and increase in the inventory. Since inventory increases, firms reduce output. The reducing output causes decrease in employment and income. When income decreases, reducing price of the good fails to increase the demand.

The decrease in aggregate expenditure reduces the aggregate demand. This in turn increases the inventory. Since actual inventory level is greater than equilibrium level, the firm reduces the output and does not increase the output even though the interest rate decreases.

Thus, the depression lasted for a long time period due to the wage rigidity and lower aggregate demand even when the rate of interest or price of the good had reduced.

Economics Concept Introduction

Aggregate expenditure: The aggregate spending or expenditure is the total spending on goods and services in an economy at a given time period. There are four components of the aggregate expenditure: consumption (C), planned investment (I), and government purchases (G), and net exports (NX).

Answer 7

Chapter 11, Problem 1CQ

To determine

The equilibrium point and reason for the great depression lasting for a long time.

Answer 8

Expert Solution & Answer

Explanation of Solution

According to Keynesian view, the equilibrium output is determined at the point where the aggregate planned expenditure is equal to the current output level. In addition, the equilibrium level of output is determined at less than full employment level of output.

During the great depression of 1930s, there was wage rigidity due to the union. Particularly, the wage rigidity was in terms of reducing wage. When the aggregate expenditure decreases, it leads to reduction in the sales and increase in the inventory. Since inventory increases, firms reduce output. The reducing output causes decrease in employment and income. When income decreases, reducing price of the good fails to increase the demand.

The decrease in aggregate expenditure reduces the aggregate demand. This in turn increases the inventory. Since actual inventory level is greater than equilibrium level, the firm reduces the output and does not increase the output even though the interest rate decreases.

Thus, the depression lasted for a long time period due to the wage rigidity and lower aggregate demand even when the rate of interest or price of the good had reduced.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Aggregate expenditure: The aggregate spending or expenditure is the total spending on goods and services in an economy at a given time period. There are four components of the aggregate expenditure: consumption (C), planned investment (I), and government purchases (G), and net exports (NX).

Answer 12

Ch. 11 - Prob. 1CQ Ch. 11 - Prob. 2CQ Ch. 11 - Prob. 3CQ Ch. 11 - Prob. 4CQ Ch. 11 - Prob. 5CQ Ch. 11 - Prob. 6CQ Ch. 11 - Prob. 7CQ Ch. 11 - Prob. 8CQ Ch. 11 - Prob. 9CQ Ch. 11 - Prob. 10CQ

The equilibrium point and reason for the great depression lasting for a long time.

Concept explainers

The equilibrium point and reason for the great depression lasting for a long time.

Explanation of Solution

Want to see more full solutions like this?

Chapter 11 Solutions