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Consider an economy described by the following equations.
Y=C+I+G
C=100+.75(Y−T)
I=500−50r
G=125
T=100
Where: Y is GDP, C is consumption, I is investment, G is government spending, T is taxes and r is the rate of interest.
Question:
In this case, explain the policy that was used by the policymaker to target the aggregate demand.
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Solved in 2 steps
- Using a macroeconomics demand/supply analysis, where do you think current output is relative to what the economy is capable of producing? Look at recent trends in the data. What are the recent trends in the components of aggregate demand (consumption spending, investment spending, government purchases, and exports and imports?Question Consider an economy described by the following equations: Y = C+I+G C = 100+0.75 (Y-T) I = 500-50r G = 125 T = 100 where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and r is the interest rate. If the economy were at full employment (that is, at its natural rate), GDP would be 2,000. What is the marginal propensity to consume in this economy? Suppose the central bank’s policy is to adjust the money supply to maintain the interest rate at 4 percent, so r = 4. Solve for GDP. How does it compare to the full-employment level? Assuming no change in monetary policy, what change in government purchases would restore full employment? Assuming no change in fiscal policy, what change in the interest rate would restore full employment?State whether each of the following transactions is a part of aggregate demand in the United States, and whether it is C, I, G, X, or IM. a. Will buys a compact disc player made in Japan b. Dieter, a German resident, buys frozen chickens that were raised in the United States c. The U.S. government sends an insurance check to Renee, an unemployed keypunch operator.
- State whether each of the following transactions is a part of aggregate demand in the United States, and whether it is C, I, G, X, or IM. a. David buys a keyboard synthesizer made in the United States b. A Japanese automaker buys stock in an American auto company c. A Japanese automaker builds an assembly plant in Illinois d. Will buys a compact disc player made in Japan e. Dieter, a German resident, buys frozen chickens that were raised in the United States f. The U.S. government sends an insurance check to Renee, an unemployed keypunch operator.Use an aggregate demand and supply diagram to illustrate and explain how each of the following will affect the equilibrium price level and the real GDP. Describe and analyze the new situation (inflationary gap, recessionary gap, stagflation). How should the situation be rectified in order to return to full employment?• Consumers expect a recession• Foreign income rises• Foreign price levels fall• Government spending increases• Workers expect high future inflation and negotiate higher prices now• Technological improvement increase productivityQUESTION: How should the situation be rectified in order to return to full employment?Use an aggregate demand and supply diagram to illustrate and explain how each of the following will affect the equilibrium price level and the real GDP. Describe and analyze the new situation (inflationary gap, recessionary gap, stagflation). How should the situation be rectified in order to return to full employment? • Consumers expect a recession • Foreign income rises • Foreign price levels fall • Government spending increases • Workers expect high future inflation and negotiate higher prices now • Technological improvement increase productivity
- Use an aggregate demand and supply diagram to illustrate and explain how each of the following will affect the equilibrium price level and the real GDP. Describe and analyze the new situation (inflationary gap, recessionary gap, stagflation). How should the situation be rectified in order to return to full employment? • Workers expect high future inflation and negotiate higher prices now • Technological improvement increase productivityFrom 1/1/2020 to 7/1/2020, real GDP decreased but the GDP deflator stayed approximately the same (thus, treat it as the same number at the beginning of this period as it was at the end of this period). According to our aggregate supply/demand analysis, which of the following must have occurred over this time frame? (Use the graph to help you see if you can determine any shift(s).) Group of answer choices a) increase in Aggregate Demand, decrease in Aggregate Supply b) decrease in Aggregate Demand, decrease in Aggregate Supply c) increase in Aggregate Demand, increase in Aggregate Supply d) increase in Aggregate Demand, but no way to determine the direction of shift in Aggregate Supply e) decrease in Aggregate Demand, increase in Aggregate SupplyThe following equations describe a Keynesian model of a closed economy: C = 500 - 0.5(Y - T) - 100r I = 350 - 100r L = 0.5Y - 200i πe = 0.05 G = T = 200 Y = 1850 M = 3560 a. Find the full-employment equilibrium values of the real interest rate, consumption, investment, and the price level. b. Suppose government purchases decline to 175, with no change in taxes. What happens to the real interest rate, output, consumption, and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate, consumption, investment, and the price level? c. Suppose instead that government purchases rise to 225, with no change in taxes, starting from the equilibrium in part (a). What happens to the real interest rate, output, consumption, and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate, consumption, investment, and…
- Which of following statements explains why the consumption of all 'weak-willed' households tends to closely track their income? Select one: a. Households suffering from 'weakness of will' try to live beyond their means. b. Households suffering from 'weakness of will' are unlikely to have accumulated savings. c. Households suffering from weakness of will are unlikely to make the effort to find alternative income and employment in the face of a negative shock. d. Weak-willed households tend to borrow more to sustain consumption if their income fallsFord announces that it will add 2000 salaried jobs to its Canadian workforce this month. The average salary for the employees is 50,000 and the propensity to consume is 0.3 Assuming the money goes into the economy as one large injection of money at the beginning of the year, what will be the overall growth in Economic output for the year?The U.S. economy is initially in short-run macro-equilibrium. Assume that China falls into a deep recession. As a result, we observe the following in our economy: Question 34 options: a) Both the price level and real GDP increase. b) The price level falls and real GDP increases c) Both the price level and real GDP decrease d) The price level increases and real GDP falls
