For each of the following shocks, identify what component(s) of U.S. planned aggregate expenditure are directly...
For each of the following shocks, identify what component(s) of U.S. planned aggregate expenditure are directly affected and in which direction.
a. Income tax rates increase:
Which component of planned aggregate expenditure is affected?
Consumption
Investment
Government spending
Net exports
None of these are affected
What happens to planned aggregate expenditure?
Increases
Decreases
Unaffected
b. China experiences an economic boom:
Which component of planned aggregate expenditure is affected?
Consumption
Investment
Government spending
Net exports
None of these are affected
What happens to planned aggregate expenditure?
Increases
Decreases
Unaffected
c. People become more optimistic regarding their future prospects:
Which component of planned aggregate expenditure is affected?
Consumption
Investment
Government spending
Net exports
None of these are affected
What happens to planned aggregate expenditure?
Increases
Decreases
Unaffected
d. Congress decides to increase funding for education:
Which component of planned aggregate expenditure is affected?
Consumption
Investment
Government spending
Net exports
None of these are affected
What happens to planned aggregate expenditure?
Increases
Decreases
Unaffected
e. German fashion designs become popular among celebrities:
Which component of planned aggregate expenditure is affected?
Consumption
Investment
Government spending
Net exports
None of these are affected
What happens to planned aggregate expenditure?
Decreases
Increases
Unaffected
Homework Answers
a) The correct answer is option A) because Consumption depends positively on disposable income i.e. income less taxes.
Planned aggregate expenditure will decrease.
b) The correct answer is option B) because investment will bring positive profits.
Planned expenditure will increase
c) The correct answer is option A) because consumption will decrease in current period.
Aggregate expenditure will fall.
d) The correct answer is option C) because government will be spending this amount.
Aggregate expenditure will increase.
e) The correct answer is option D) because celebrities will import cloths from Germany.
Aggregate expenditure will fall.
Add Answer to:
For each of the following shocks, identify what
component(s) of U.S. planned aggregate expenditure are directly...
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Based on the assumptions of the aggregate expenditure model,
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