Assuming that there is no government spending or trade, an economy’s GDP is the sum of domestic consumption C and investment I, i.e. Y = C+ I - Assume that I is unaffected by GDP - Assume the consumption function is C = c + c Y - In any equilibrium aggregate demand, AD must be equal to Y, GDP. Which NINE of the following statements are correct? a. The aggregate demand equation is given by AD = c + c Y + I b. c is equal to autonomous consumption c. if c is a number between 0 and 1, and I+c >0 then the aggregate demand equation is a straight line that must intersect the 45 degree line at some point. d. In a demand-driven economy the AD curve is a vertical line e. In a demand-driven economy demand is equal to supply in equilibrium f. In a supply-driven economy demand is equal to supply in equilibrium g. In a demand-driven economy, supply creates its own demand h. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y= c + c + I i. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y = m(c + I), where m = 1/(1 - c ) is the multiplier. j. if c = 0.8 the multiplier is equal to 1/0.8= 1.25 k. if c = 0.75 the multiplier is equal to 4 l. assume c =100, I=50, c =0.6. The equilibrium value of Y in a demand-driven economy is 300. m. Assume that Y is initially 400, I is initially 100, and the multiplier is 2.5. I increases by 10%. The multiplier implies that in equilibrium Y will increase by 25%. n. The higher is c the larger is the multiplier o. If consumers attempt to save more, by reducing their autonomous consumption, in a demand-driven economy this will cause output to fall. p. If consumers attempt to save more, by reducing their autonomous consumption, in a demand-driven economy this will cause their saving ratio to rise (where the saving ratio is given by S/Y, and S=Y-C)
- Assuming that there is no government spending or trade, an economy’s GDP is the sum of domestic consumption C and investment I, i.e. Y = C+ I
- Assume that I is unaffected by GDP
- Assume the consumption function is C = c + c Y
- In any equilibrium aggregate
Which NINE of the following statements are correct?
a. The aggregate demand equation is given by AD = c + c Y + I
b. c is equal to autonomous consumption
c. if c is a number between 0 and 1, and I+c >0 then the aggregate demand equation is a straight line that must intersect the 45 degree line at some point.
d. In a demand-driven economy the AD curve is a vertical line
e. In a demand-driven economy demand is equal to supply in equilibrium
f. In a supply-driven economy demand is equal to supply in equilibrium
g. In a demand-driven economy, supply creates its own demand
h. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y= c + c + I
i. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y = m(c + I), where m = 1/(1 - c ) is the multiplier.
j. if c = 0.8 the multiplier is equal to 1/0.8= 1.25
k. if c = 0.75 the multiplier is equal to 4
l. assume c =100, I=50, c =0.6. The equilibrium value of Y in a demand-driven economy is 300.
m. Assume that Y is initially 400, I is initially 100, and the multiplier is 2.5. I increases by 10%. The multiplier implies that in equilibrium Y will increase by 25%.
n. The higher is c the larger is the multiplier
o. If consumers attempt to save more, by reducing their autonomous consumption, in a demand-driven economy this will cause output to fall.
p. If consumers attempt to save more, by reducing their autonomous consumption, in a demand-driven economy this will cause their saving ratio to rise (where the saving ratio is given by S/Y, and S=Y-C)
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