10. A.) Illustrate the impact of a change that occurs in an economy when the level...
10. A.) Illustrate the impact of a change that occurs in an economy when the level of wealth held by consumers drops:
10. B.) What might cause a drop in real wealth like this?
Homework Answers
When wealth is reduced, future looks gloomy and so the consumption spending declines. This reduces aggregate spending and shifts AD to the left. Price level and output level both fall
A stock market crash can result in an outcome where accumulated wealth is reduced. This also happens when there is a burst of an economic / financial bubble.
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10. A.) Illustrate the impact of a change that occurs in an
economy when the level...
Macroeconomics Schools of Thought In Class Assignment 1. Assume the economy is currently in long and...
Macroeconomics
Schools of Thought In Class Assignment 1. Assume the economy is currently in long and short run equilibrium. a. Suppose that the government in this economy goes to war. Holding everything else constant, what do you predict will happen to real GDP and the aggregate price level in the short run? What type of gap is created? Use the AS/AD model to illustrate. a. According to a Classical economist, how can the economy move back to its potential? Explain...
Assume that the real wage in an economy is held above equilibrium. Graphically illustrate how an...
Assume that the real wage in an economy is held above equilibrium. Graphically illustrate how an increase in technology that raises the demand for labor will change the number of unemployed workers. Be sure to label the axes and the quantities of labor hired before and after the technological progress. Explain in words what happens to the number of unemployed as a result of this change. 2. a. b.
10 percent Chapter 11 umers to spend more of their income on goods and services, What...
10 percent Chapter 11 umers to spend more of their income on goods and services, What factors might cause cons thereby shifting the AD curve rightward? t follows epts aggregate supply and demand conditions in an 2. rs when S6 trillion of real output is produced. economy. Full employment occurs when S6 trillion a. What is the equilibrium rate of output? b. How far short of full employment is the equilibrium rate of output? c. IlIlustrate a shift of aggregate...
The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A,...
The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 120, and the quantity of output demanded is $500 billion. Moving up along the aggregate demand curve from point A to point B, the price level rises to 140, and the quantity of output demanded falls to $300 billion. As the price level rises, the purchasing power of households' real wealth will _______ causing the quantity of output demanded to _______...
Assume that the economy starts at potential output, and then there is a major decline in new home construction. a) Describe the short-run impact of this change on real GDP and the price level. Be spec...
Assume that the economy starts at potential output, and then there is a major decline in new home construction. a) Describe the short-run impact of this change on real GDP and the price level. Be specific about what component(s) of GDP change, and explain the economics behind the changes you describe. b) Assuming no further shocks/changes in policy, describe how the economy will transition from the short-run equilibrium in part a) to its long-run equilibrium. Be sure to explain the...
equilibrium output to S6 trillion. AS) that t. What is the price level at this new...
equilibrium output to S6 trillion. AS) that t. What is the price level at this new equilibrium? Chapter 12 Draw a graph to illustrate the desired aggregate expenditures of an economy whose participants have the following spending plans: 1. С $10+0.SY İ $20 G $30 X-M-$10 (a) What is the value of equilibrium output? (b) How much are consumers saving at equilibrium? (c) How much nonconsumer spending is being injected? (d) Assuming that the full-employment level of output is S300,...
Suppose that the economy is at long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be su...
Suppose that the economy is at long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short-run aggregate supply, and long-run aggregate supply. b. Now suppose that a severe decline in the value of homes has affected the entire economy. Use your diagram to show what happens to output, employment, and the price level in the short run. Explain how households and businesses will adjust to this unanticipated shock to the...
12. The tax multiplier for the below economy would be domestic output AE, closed economy government...
12. The tax multiplier for the below economy would be domestic output AE, closed economy government 200 230 20 250 270 20 300 310 20 350 350 20 400 390 20 450 430 20 500 470 20 A) -2 B) -3 C) -4 D) -5 13. If the economy is operating at a point above the equilibrium point, then A) AE is greater than GDP B) GDP is greater than AE C) The economy is at a sustainable full employment...
Suppose that the aggregate demand and supply schedules for a hypothetical economy are as shown below:
1. Suppose that the aggregate demand and supply schedules for a hypothetical economy are as shown below: a. Use these sets of data to graph the aggregate demand and aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output? Explain. b. Why will a price level of 150 not be an equilibrium price level in this economy? Why not 250? c. Suppose...
For this question, assume that the economy is initially operating at the natural level of output....
For this question, assume that the economy is initially operating at the natural level of output. A reduction in taxes will cause: A) an increase in the real wage in the medium run. B) a reduction in the real wage in the medium run. C) no change in the nominal wage in the medium run. D) ambiguous effects on the real wage in the medium run.
Macroeconomics
Schools of Thought In Class Assignment 1. Assume the economy is currently in long and short run equilibrium. a. Suppose that the government in this economy goes to war. Holding everything else constant, what do you predict will happen to real GDP and the aggregate price level in the short run? What type of gap is created? Use the AS/AD model to illustrate. a. According to a Classical economist, how can the economy move back to its potential? Explain...
Assume that the real wage in an economy is held above equilibrium. Graphically illustrate how an increase in technology that raises the demand for labor will change the number of unemployed workers. Be sure to label the axes and the quantities of labor hired before and after the technological progress. Explain in words what happens to the number of unemployed as a result of this change. 2. a. b.
10 percent Chapter 11 umers to spend more of their income on goods and services, What factors might cause cons thereby shifting the AD curve rightward? t follows epts aggregate supply and demand conditions in an 2. rs when S6 trillion of real output is produced. economy. Full employment occurs when S6 trillion a. What is the equilibrium rate of output? b. How far short of full employment is the equilibrium rate of output? c. IlIlustrate a shift of aggregate...
equilibrium output to S6 trillion. AS) that t. What is the price level at this new equilibrium? Chapter 12 Draw a graph to illustrate the desired aggregate expenditures of an economy whose participants have the following spending plans: 1. С $10+0.SY İ $20 G $30 X-M-$10 (a) What is the value of equilibrium output? (b) How much are consumers saving at equilibrium? (c) How much nonconsumer spending is being injected? (d) Assuming that the full-employment level of output is S300,...
Suppose that the economy is at long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short-run aggregate supply, and long-run aggregate supply. b. Now suppose that a severe decline in the value of homes has affected the entire economy. Use your diagram to show what happens to output, employment, and the price level in the short run. Explain how households and businesses will adjust to this unanticipated shock to the...
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