BU204_Section2_Unit6

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Purdue Global University *

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204

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Economics

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Jan 9, 2024

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docx

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1 Unit 6 Assignment Template: Aggregate Demand and Aggregate Supply Name: BU204 Section Number: 2 Date:11.28.2023 Assignment This assignment addresses the market for loanable funds, marginal propensity to consume, the multiplier effect, aggregate supply (AS), aggregate demand (AD), and the basic concepts of open economy macroeconomics This assignment assesses your knowledge on the following Course Outcome: BU204-1: Examine how consumer spending, savings, investment spending, and other factors contribute to long-run economic growth. 1. A business contemplates building a new manufacturing facility and will need to seek loanable funds of $130 million. It expects that the new facility will yield a 12% return on investment (ROI). What is the current loanable funds market equilibrium rate depicted in the graph below? Given the current loanable funds market equilibrium depicted in the graph below, is it likely that the firm will borrow the money to build the new facility? Why?
2 Description: A graph showing the supply, in a red straight line rising to the right, and demand, in a straight blue line descending to the right, for loanable funds with the market interest rates on the vertical axis and money available on the horizontal axis. Initial equilibrium is at 8% interest rate and 300 million dollars. Yes, the firm will likely borrow the money due to the return being at 12% and the equilibrium rate being 8%. The difference will yield a profit for the business which is why they would go ahead with the loan for their new facility. 2. Given the income and consumption for the three individuals in the table below, calculate their individual marginal propensity to consume (MPC) and the total marginal propensity to consume for the entire group.
3 Name Income Consumption MPC Anne $20,000 $17,000 (17000/20000) = .85 Brad $30,000 $22,000 (5000/10000) = .5 Claire $40,000 $24,000 (2000/10000) = .2 Total (90000) (63000) (63000/90000) = .7 3. The following questions relate to long-run macroeconomic equilibrium and the stock market boom. Assume that a hypothetical economy is at long-run macroeconomic equilibrium with full employment and stable prices. Suddenly, the stock market prices increased much more than expected, increasing investors’ wealth and causing a short-term period of increased optimism about the future of the economy. a. In the short-run, will the AS curve or the AD curve shift? In which direction will it shift? In the short-run, the AD curve will move right due to the consumers increase in wealth. b. In the short-run, what will happen to the price level and the quantity of output (real GDP)? In the short-run, price level and real GDP will both increase. c. Explain what, if any, impact will there likely be on workers’ wages and the reasons for this impact. Expected price level raises will raise higher than actual price. Higher price level will increase demand in higher wages so the short run supply will fall due to the increase. d. In the long-run, which curve will shift due to the change in wages and price expectations created by the stock market boom? In which direction will it shift?
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