MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 9, Problem 3TY
To determine
To construct: An aggregate
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Suppose that the price level is constant and that investment decreases sharply. How would you show this decrease in the aggregate expenditures model? What would be the outcome for real GDP? How would you show this fall in investment in the aggregate demand–aggregate supply model, assuming the economy is operating in what, in effect, is a horizontal section of the aggregate supply curve?
Consumption spending was $150$150 billion, investment spending was $40$40 billion, government spending was $50$50 billion, spending on exports was $42$42billion, and spending on imports was $35$35 billion. The price level increases, resulting in a decline in investment spending by 30%30%. Consumption spending decreases by 10%10%.If other factors stay at the same level, determine aggregate demand after the price level increased. Enter your answer in the box below.
Describe what the effect on aggregate demand would be, other things being equal, if
exports increase.
both imports and exports decrease.
consumption decreases.
investment increases.
investment decreases and government purchases increase.
the price level increases.
the price level decreases.
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- Which of the following both shift the aggregate demand curve to the right? Group of answer choices net exports rise for some reason other than a price change and the money supply rises. net exports fall for some reason other than a price change and the money supply rises. net exports rise for some reason other than a price change and the price level rises. net exports fall for some reason other than a price change and the price level rises.arrow_forwardIdentify factors that would cause consumption spending to increase. What effect would that have on aggregate demand?arrow_forwardIn order to break stagflation, the government has to increase expenditure on food subsidies in the form of food vouchers, unemployment benefits or allowances, wages subsidy to increase household consumption expenditure and boost up the AD. With increased consumption expenditure, aggregate demand will rise, which would send a signal to the aggregate supply (AS) to raise production. This will create a positive effect, which will bring the economy out of recession. Show this in a graph.arrow_forward
- If investment increases by $50 billion, by how much will aggregate demand change? Aggregate demand will _______. A. increase by less than $50 billion because there will be fewer goods and services produced for consumption expenditure B. increase by more than $50 billion because the increase in aggregate income induces an increase in consumption expenditure C. probably decrease by $50 billion, but it depends on the change in aggregate supply D. increase by exactly $50 billion because investment is a component of aggregate demandarrow_forwardWhich of the following both shift aggregate demand left? Answer a decrease in taxes and at a given price level consumers feel more wealthy a decrease in taxes and at a given price level consumers feel less wealthy an increase in taxes and at a given price level consumers feel more wealthy an increase in taxes and at a given price level consumers feel less wealthyarrow_forward
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