Question

please help!!

The longest government shutdown in United States history ended on January 25, 2019 after 35 days. Government shutdowns not only impact federal employees and the efficiency of the government, but can also affect consumption and GDP. For this assignment, fully address the following prompt based on what you've learned in this module about consumption, Real GDP, and the multiplier What effect do you think this federal government shutdown may have had on the Keynesian C+I+G+X curve? As part of your answer, make sure to address how each component of the curve is affected, as well as how APC, APS, MPC, MPS, and the multiplier contribute to the changes.

Answer 1

Government shutdown will also affect the consumption and GDP pattern of the economy as follows:

a) Consumption level on an average must have fallen as there was instability in the economy and therefore, velocity of money got reduced. As a result, money supply in the economy had fallen along with, aggregate demand, employment rate, income level- all these components had fallen too.

b) GDP must have fallen because of shutdown of the government as the production of goods and services in the economy had got reduced as it sensed an instability in the market.

c) Real GDP: (price of the base year* quantity of the current year) Real GDP will fall as there will be reduction in the quantity of goods and services produced in an economy.

d) Multiplier= 1/(1-MPC)). Multiplier will also fall as multiplier and consumption level both has a positive relationship and hence as consumption level on an average will fall due to the shutdown of the government, the multiplier will also go down.

note: here, MPC= Marginal propensity to consume= change in consumption/ change in income level

e) Keynesian curve will shift to the rightward as there we observed a fall in the components of the aggregate demand curve.

Components of AD curve: consumption, investment, government expenditure, net exports

rightward. Shutdown of the government curve shift to the off to in AD in the economy will imply make a AD fall - ADI(C+I+G+X AD Expenditure Income TS Seannee-with CamScanner Output income

Effect on APC, APS, MPC, MPS and multiplier

a)Fall in Consumption level will make APC fall as APC= consumption/ income

b) Fall in consumption will make savings rise and hence APS will rise.

here, APS= savings/income

c) Fall in Consumption level will make MPC fall as APC= change in consumption/ change in income

b) Fall in consumption will make savings rise and hence MPS will rise.

here, MPS= change in savings/ change in income.

For diagram, refer to the image.