EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 30, Problem 1P
To determine
Factors causing changes (shifts) in AD Curve.
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Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy�s multiplier is 3. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? The aggregate demand curve will shift_____ by $____ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift_____ by $____ billion..
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy’s multiplier is 4.
a. If household wealth falls by 5 percent because of declining house values, and the real interest rate falls by 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level?
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?
Chapter 30 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Ch. 30.7 - Prob. 1QQCh. 30.7 - Prob. 2QQCh. 30.7 - Prob. 3QQCh. 30.7 - Prob. 4QQCh. 30.A - Prob. 1ADQCh. 30.A - Prob. 2ADQCh. 30.A - Prob. 1ARQCh. 30.A - Prob. 2ARQCh. 30.A - Prob. 1APCh. 30.A - Prob. 2AP
Ch. 30 - Prob. 1DQCh. 30 - Prob. 2DQCh. 30 - Prob. 3DQCh. 30 - Prob. 4DQCh. 30 - Prob. 5DQCh. 30 - Prob. 6DQCh. 30 - Prob. 7DQCh. 30 - Prob. 8DQCh. 30 - Prob. 9DQCh. 30 - Prob. 1RQCh. 30 - Prob. 2RQCh. 30 - Prob. 3RQCh. 30 - Prob. 4RQCh. 30 - Prob. 5RQCh. 30 - Prob. 6RQCh. 30 - Prob. 7RQCh. 30 - Prob. 8RQCh. 30 - Prob. 9RQCh. 30 - Prob. 1PCh. 30 - Prob. 2PCh. 30 - Prob. 3PCh. 30 - Prob. 4PCh. 30 - Prob. 5P
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- G.283.arrow_forwardWhy is the aggregate demand curve downsloping? Specify how your explanation differs from the explanation for the downsloping demand curve for a single product. What role does the multiplier play in shifts of the aggregate demand curve?arrow_forwardb. Using the model from this chapter, explain the effect on GDP from an increase in G by $5 billion. An increase in spending by $5 billion will add A. directly to Eisposable income by this amount and cause an increase in national income equal to less than $5 billion due to the multiplier effect. O B. directly to aggregate demand by this amount and lead to an eventual change in national income equal to $5 billion times the simple multiplier. O C. indirectly to aggregate demand and cause an eventual change in national income equal to $5 billion. OD. indirectly to disposable income, only a fraction of which (determined by the MPC) will then be spent, ie. national income will change by less than $5 billion.arrow_forward
- Match each definition to the appropriate component of aggregate demand. Definition The sum of the expenditures of business firms on new plant, equipment, and software and of households on new homes The goods and services purchased by all levels of government The total amount spent by consumers on newly produced goods and services The difference between exports and imports ⒸNet exports O Government spending Consumer Expenditure Which of the following components represents the largest piece of aggregate demand? O Consumer expenditure O Investment spending O Which of the following components represents the smallest piece of aggregate demand? O Consumer expenditure O Government spending O Investment spending ONet exports Investment Spending Government Spending Net Exports O O O Oarrow_forwardSuppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 3. Instructions: Enter your answers as a whole number. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? Aggregate demand will initially shift (Click to select) V by $ billion. b. In what direction and by how much will it eventually shift? Aggregate demand will eventually shift (Click to select) ♥ by $ billion.arrow_forward2arrow_forward
- 3. Why the aggregate demand curve slopes downward The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. O PRICE LEVEL 170 100 150 140 130 120 110 100+ 8 90 0 100 B 200 300 400 500 OUTPUT (Billions of dollars) AD 600 700 800arrow_forwardSuppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. Instructions: Enter your answers as a whole number. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? Aggregate demand will initially shift rightward v by $ |billion. b. In what direction and by how much will it eventually shift? Aggregate demand will eventually shift rightward by $ billion.arrow_forward5. Determine the effect of the following events would on the aggregate demand (AD) curve whether shifting AD to the right (R) or to the left (L). Then indicate reasons why relating to the question 3. Think graphically! (a) After a budget surplus, Congress moves to cut personal income taxes. This will shift AD to the ) because ( increase, decrease ) in consumer spending. (b) A boost in research and development by computer companies produces more powerful and efficient computers and equipment. This will shift AD to the ( ) because ( increase, decrease ) in spending. (c) Income rises in several countries that trade heavily with the U.S. This will shift AD to the ( ) because ( increase, decrease ) in spending. What if prices fall across several industries? Then AD curve will (shift outward, shift inward, not shift ). This is because prices ( are, are not ) a component of AD. Rather, a fall in prices will cause a movement ( upward, downward ) along the AD curve.arrow_forward
- 3. Because of the slope of the aggregate demand curve, we can say that A) a decrease in the price level leads to a lower level of real GDP demanded. B) an increase in the price level leads to no change in the level of real GDP demanded. C) a decrease in the price level leads to a higher level of real GDP demanded. D) an increase in the price level leads to a higher level of real GDP demanded. 4. Which of the following best describes the "wealth effect"? A) When the price level falls, the real value of household wealth falls. B) When the price level falls, the nominal value of household wealth falls. C) When the price level falls, the nominal value of household wealth rises. D) When the price level falls, the real value of household wealth rises.arrow_forwardPlease also find the MPS to the question with the MPC of 0.50 And find the MPC to the question with the MPS of 0.4arrow_forwardAggregate demand is defined as O the relationship between the total quantity of goods and services demanded and the income level, all other determinants of spending unchanged. the relationship between the total quantity of goods and services demanded and the price level, all other determinants of spending unchanged. the demand for goods and services generated by all sectors in the economy, holding price level constant. O the relationship between the total quantity of goods and services demanded and the supply of factors of production, all other determinants of production unchanged.arrow_forward
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