EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 29, Problem 7SPPA
To determine
To explain:
The possible events that cause shift in the aggregate demand, the new equilibrium point and the type of macroeconomic equilibrium created if potential GDP is $1 trillion.
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In an economy the aggregate demand is less than aggregate supply explain the changes that will take place in this economy.
If the economy had been operating at a full- employment equilibrium, a. Describe the macroeconomic equilibrium after the rise in consumer spending. b. Explain and draw a graph to illustrate how the economy can adjust in the long run to restore a full-employment equilibrium. The magazine Women of China reported that Chinese women in big cities spent 63% of their income on consumer goods last year, up from a meager 26% in 2007. Clothing accounted for the biggest chunk of that spending, at nearly 30%, followed by digital products such as cell phones and cameras (11%) and travel (10%). Chinese consumption as a whole grew faster than the overall economy in the first half of the year and is expected to reach 42% of GDP by 2020, up from the current 36%.
Explain 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.
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Chapter 29 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 29 - Prob. 1SPPACh. 29 - Prob. 2SPPACh. 29 - Prob. 3SPPACh. 29 - Prob. 4SPPACh. 29 - Prob. 5SPPACh. 29 - Prob. 6SPPACh. 29 - Prob. 7SPPACh. 29 - Prob. 8SPPACh. 29 - Prob. 9SPPACh. 29 - Prob. 10SPPA
Ch. 29 - Prob. 11SPPACh. 29 - Prob. 1IAPACh. 29 - Prob. 2IAPACh. 29 - Prob. 3IAPACh. 29 - Prob. 4IAPACh. 29 - Prob. 5IAPACh. 29 - Prob. 6IAPACh. 29 - Prob. 7IAPACh. 29 - Prob. 8IAPACh. 29 - Prob. 9IAPACh. 29 - Prob. 10IAPACh. 29 - Prob. 1MCQCh. 29 - Prob. 2MCQCh. 29 - Prob. 3MCQCh. 29 - Prob. 4MCQCh. 29 - Prob. 5MCQCh. 29 - Prob. 6MCQCh. 29 - Prob. 7MCQ
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- Other things equal, what effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expectedeffects on the equilibrium price level and the level ofreal output.a. A reduction in the economy’s real interest rate.b. A major increase in federal spending for healthcare (with no increase in taxes).c. The complete disintegration of OPEC, causing oilprices to fall by one-half. d. A 10 percent reduction in personal income taxrates (with no change in government spending).e. A sizable increase in labor productivity (with nochange in nominal wages).f. A 12 percent increase in nominal wages (with nochange in productivity).g. A sizable depreciation in the international value ofthe dollar.arrow_forwardWhat is short term aggregate supply and how does it differ from long term aggregate supply? Also, what can an economy do that desires to increase long term aggregate supply?arrow_forwardExplain what will happen as a result of the following events. In each case, draw an aggregatedemand and short-run aggregate supply diagram showing the initial equilibrium output level (Y0) andprice level (P0). Show any changes, indicate the final equilibrium output level and price level andexplain briefly.a. The economy is in a recession. An increase in government purchases occurs. The Fedtries to maintain the interest rate. b. The economy is operating near full capacity. Now environmental pollution standardsare tightened substantially.arrow_forward
- Are the determinants of aggregate demand the same things that apply to demand for an individual good?arrow_forwardI don't quite understand what is asking of the change that will occur in the long runarrow_forwardUsing aggregate demand and aggregate supply, graph the effects on the price level and GDP of each of the following. Draw a large graph and label all axes, initial and final equilibrium points, direction of shift if any, all curves and lines, equilibrium values on the x- and y-axes. State the conclusion in words. a. A cut in income taxes b. An increase in military spending c. A drop in export demand by foreign purchasers d. An increase in imports e. A decline in business investment spendingarrow_forward
- Which of the following would shift the long-run aggregate supply curve to the right?a. a decrease in the rate of inflationb. an increase in the growth rate of spendingc. a severe drought that decreases crop production and as a result raises pricesd. the invention of a new computer chip that makes assembly production twice as fastarrow_forwardAssume that you live in a country that is a major importer of Russian oil. How will the Russian invasion of Ukraine and subsequent international sanctions against Russian exports affect your nation. a. What curve would shift first in an Aggregate Demand Aggregate Supply model for your country? b. How would the aggregate price level and aggregate output level change in the short run? What is this phenomenon called?arrow_forwardThere are three reasons the aggregate demand curve is downward sloping. What are they? Explain each reason!arrow_forward
- Need help with this. THanks!arrow_forwardIn 2013, Prussia's aggregate demand curve was determined by the equation M + 1-4% A change in aggregate demand means that in 2014, Prussia's aggregate demand curve was determined by the equation Using this information, draw Prussia's old and new dynamic aggregate demand curves on the graph Which of the factors could have resulted in the change irn aggregate demand seen between 2013 and 2014? 13 AD 2013 an improvement in technology O an increase in imports O higher consumer confidence O a decrease in oil prices 12 AD 2014 10 8 5 4 3 2 4 -3 2 1 0 1 2 3 4 5 6 78 9 10 Real GDP growth ratearrow_forwardWhat are the definition and examples of aggregate demand?arrow_forward
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