Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 10, Problem 3QQ
To determine
Indicators of recession.
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A) List and explain in detail, the components of Aggregate Demand and explain each of their determinants. List the four components and explain them and under each list and explain the determinants of each.
One explanation for the negative slope of the aggregate demand curve is the "wealth effect" (aka the "real‑balances" effect). What is this effect?
a. As inflation occurs, consumers buy fewer goods and services because the value of their accumulated wealth declines.
b. Interest rates increase when prices rise as consumers try to borrow larger amounts of money to maintain their consumption. The higher interest rate discourages spending.
c. As inflation occurs, the purchasing power of consumers increases as accumulated wealth increases in value.
d. For normal goods, people buy more of a product if their income increases.
According to the wealth effect, what happens as the price level falls?
a. Consumption spending decreases and investment spending increases.
b. Consumption spending decreases.
c. Consumption spending increases and investment spending decreases.
d. Consumption and investment spending increase.
e. Consumption and investment spending…
What is the effect of a rise in the money wage rate when the economy is at potential GDP?
A rise in the money wage rate when the economy is at potential GDP
A. does not change potential GDP but increases real GDP along the AS curve.
B. decreases potential GDP because the full-employment quantity of labor decreases
C. does not change aggregate supply but decreases production
D. decreases aggregate supply because a rise in the money wage rate increases costs, so firms employ fewer workers
Click to select your answer.
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- 4. Identify factors that would cause consumption spending to increase. What effect would that have on aggregate demand?arrow_forwardExplain under the following circumstances what will happen to the aggregate demand and/or aggregate supply. a. People have less disposable income on their hand due to an increase in the taxes b. Investors thinks the market soon going to face recession and therefore, expect less returns C. The U.S government limits the number of working visas d. Less foreigners are investing in the U.S in the form of Foreign Direct Investment Make sure to provide reasoning for your response. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS Paragraph Arial == ווין T {;} P RA KJ X² X₂ 10pt >¶¶< + ABC ¶T ¶¶ Ω Θ Ix X X Q5 88 : A = 旺图 O WORDS POWERED BY TINYarrow_forwardThe graph below shows the long-run aggregate supply (LRAS), the short-run aggregate supply (SRAS), and aggregate demand (AD) curves for a given economy. LRAS 10 Manipulate the curves to show the long run effect of an increase in money supply. 9. SRAS 8. In the long run, an increase in the money supply will result in the following. 6. Real GDP: 3 AD 1 0. 01 1 4 6. 8. 6. 10 Real GDP The aggregate price level decreases stays the same increases 2. 7, 5. Aggregate price levelarrow_forward
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