Homework Answers
Ans) 1) Aggregate investment expenditure is done by the private investors. It is also known as induced investment as it depends upon the level of profit. Its main determinant is rate of interest. It includes purchase of machinery, infrastructure or production input.
2) Keynesian cross is a 45° line which starts from origin, where planned aggregate expenditure is equal to real GDP.
3) Aggregate supply shows how much goods and services will be produced at given price level. It has three zones ÷ Keynesian, intermediate and Classical.
Keynesian stage ÷ here little is produced and a lot of resources are not utilized. Here production can be increased without increasing the price.
Intermediate ÷ here the growth slowly picks up the pace and some resources begin to exhaust. Slope slowly becomes steeper as more and more resources starts to exhaust.
Classical ÷ Here all the resources are fully employed. And if business wants to increase the production, they will have to raise the price in order to compensate for higher cost.
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3. What is aggregate investment spending? 4. Define Keynesian cross. 5. The aggregate supply curve can...
Create a graph with an aggregate demand curve and an aggregate supply curve in the short-run....
Create a graph with an aggregate demand curve and an aggregate supply curve in the short-run. Use the variable ‘Price Level’ for the vertical axis and ‘Real GDP’ for the horizontal axis. Indicate the equilibrium level of output and the price level. In essay form, describe a fiscal policy scenario that could result in a reduction of unemployment. Show the new equilibrium level of output and price level as a result of this policy in your graph. Explain how the...
Solve 1. 2. 3. 4. 5. 1 Keynesian Cross Assume that households' consumption function is given...
Solve 1. 2. 3. 4. 5.
1 Keynesian Cross Assume that households' consumption function is given by C(Y -T) 50+ 0.75(Y T), that firms' investment function is I(r) 150 10r, government spending is G 150, and the tax bill T 200. 1. What is the Marginal Propensity to Consume "MPC")? 2. What is the equilibrium level of real GDP in the goods market if the real interest rate is 5%? (Plug in r = 5 for 5%, rather than 0.05...
2. Chapter 11, The Keynesian Cross (5 points): • In the Keynesian cross, assume that the...
2. Chapter 11, The Keynesian Cross (5 points): • In the Keynesian cross, assume that the consumption function is given by: C = 200 +0.75(Y - T) Planned investment is 100, government purchases and taxes are both 100. (a) Graph planned expenditure as a function of income. (b) What is the equilibrium level of income? (c) If government purchases increase to 125, what is the new equilibrium income? (d) What level of government purchases is needed to achieve an income...
1) If aggregate demand (AD) shifted to the right or left in the Keynesian zone, it...
1) If aggregate demand (AD) shifted to the right or left in the Keynesian zone, it will determine the resulting level of ___________. Select the correct answer below: a) real GDP b) potential GDP c) output and unemployment d) inflationary price pressure 2) Long-run changes in aggregate supply, or the long-run aggregate supply curve, is defined by the vertical line at ____________. Select the two correct answers below. Select all that apply: a) full-employment GDP b) real GDP c) potential...
Using the IS-LM and Aggregate Supply-Aggregate Demand (AS-AD) models of Chapter 12 with a flat short-run...
Using the IS-LM and Aggregate Supply-Aggregate Demand (AS-AD) models of Chapter 12 with a flat short-run AS curve (that is, completely sticky prices), suppose the economy is at the natural rate of unemployment and so, at long-run equilibrium. Suddenly, taxes are reduced with no change in government spending. Tell me (or show on a graph) what happens to the IS and/or LM curves. Show on a different graph what happens on the AS-AD diagram in the short-run (drawing in the...
Question 1. Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by...
Question 1. Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C= 200 + 2/3(Y-T). Planned investment is 300, as are government spending and taxes. (18 points) a. If Y is 1,500, what is planned spending? Should equilibrium Y be higher or lower than 1,500? (4 points) b. What is equilibrium Y? (Hint: Substitute the values of equations for planned consumption, investment, and government spending into the equation Y C+I+ G and then...
QUESTION 4 With an upward-sloping aggregate supply curve, real output can be increased to the full...
QUESTION 4 With an upward-sloping aggregate supply curve, real output can be increased to the full employment output level if: O A Government expenditures are increased by the amount of the GDP gap. O B. Government expenditures are increased by the amount of the AD shortfall. C. Aggregate demand is increased by the amount of the GDP gap. o D. Govenment expenditures are increased by the amount of the AD shortfall divided by the multiplier QUESTION 5 To eliminate an...
question 44 An increase in investment spending can be expected to the aggregate demand curve. interest...
question 44
An increase in investment spending can be expected to the aggregate demand curve. interest rates and cause o increase; a rightward shift of O increase; an upward movement along O decrease; a downward movement along O decrease; a leftward shift of O have no effect on; no change in DQuestion 44 1 pts Money serves as a unit of account when goods have a value expressed in the same currency, thus allowing comparisons O O have a value...
3. Deriving the IS Curve: Use an income/spending graph and IS curve graph to show the...
3. Deriving the IS Curve: Use an income/spending graph and IS curve graph to show the shortrun impact of an increase in the interest rate on output in the goods market. Include a brief explanation in your answer and be sure to properly label your graphs. 4. Shifting the IS Curve: Use an income/spending graph and IS curve graph to show the shortrun impact of an increase in autonomous investment on output in the goods market. Include a brief explanation...
5. In the Keynesian model which of the following would be most likely to have the largest impact on aggregate demand a. an increase in the money supply b. a change in government expenditure c. a chan...
5. In the Keynesian model which of the following would be most likely to have the largest impact on aggregate demand a. an increase in the money supply b. a change in government expenditure c. a change in investment expectations d. both a and c e. both b and c 6. In the Keynesian theory of liquidity demand and the interest rate which of the following occurs during excess supply of money. a. individuals sell bonds, driving interest rates down...
Solve 1. 2. 3. 4. 5.
1 Keynesian Cross Assume that households' consumption function is given by C(Y -T) 50+ 0.75(Y T), that firms' investment function is I(r) 150 10r, government spending is G 150, and the tax bill T 200. 1. What is the Marginal Propensity to Consume "MPC")? 2. What is the equilibrium level of real GDP in the goods market if the real interest rate is 5%? (Plug in r = 5 for 5%, rather than 0.05...
2. Chapter 11, The Keynesian Cross (5 points): • In the Keynesian cross, assume that the consumption function is given by: C = 200 +0.75(Y - T) Planned investment is 100, government purchases and taxes are both 100. (a) Graph planned expenditure as a function of income. (b) What is the equilibrium level of income? (c) If government purchases increase to 125, what is the new equilibrium income? (d) What level of government purchases is needed to achieve an income...
Using the IS-LM and Aggregate Supply-Aggregate Demand (AS-AD) models of Chapter 12 with a flat short-run AS curve (that is, completely sticky prices), suppose the economy is at the natural rate of unemployment and so, at long-run equilibrium. Suddenly, taxes are reduced with no change in government spending. Tell me (or show on a graph) what happens to the IS and/or LM curves. Show on a different graph what happens on the AS-AD diagram in the short-run (drawing in the...
Question 1. Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C= 200 + 2/3(Y-T). Planned investment is 300, as are government spending and taxes. (18 points) a. If Y is 1,500, what is planned spending? Should equilibrium Y be higher or lower than 1,500? (4 points) b. What is equilibrium Y? (Hint: Substitute the values of equations for planned consumption, investment, and government spending into the equation Y C+I+ G and then...
QUESTION 4 With an upward-sloping aggregate supply curve, real output can be increased to the full employment output level if: O A Government expenditures are increased by the amount of the GDP gap. O B. Government expenditures are increased by the amount of the AD shortfall. C. Aggregate demand is increased by the amount of the GDP gap. o D. Govenment expenditures are increased by the amount of the AD shortfall divided by the multiplier QUESTION 5 To eliminate an...
question 44
An increase in investment spending can be expected to the aggregate demand curve. interest rates and cause o increase; a rightward shift of O increase; an upward movement along O decrease; a downward movement along O decrease; a leftward shift of O have no effect on; no change in DQuestion 44 1 pts Money serves as a unit of account when goods have a value expressed in the same currency, thus allowing comparisons O O have a value...
5. In the Keynesian model which of the following would be most likely to have the largest impact on aggregate demand a. an increase in the money supply b. a change in government expenditure c. a change in investment expectations d. both a and c e. both b and c 6. In the Keynesian theory of liquidity demand and the interest rate which of the following occurs during excess supply of money. a. individuals sell bonds, driving interest rates down...
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