Stacking the two macroeconomic models together, and we assume that the price lev

Question

Stacking the two macroeconomic models together, and we assume that the price level is fixed and the SAS Curve is drawn as a horizontal line, if the AE Curve is represented by AE = $300 + 0.6Y, an initial shift in the Aggregate Expenditures Curve in the Multiplier Model of $100 will be depicted as a cumulative shift of the AD Curve and an increase in aggregate equilibrium income of:

If a fall in the value of the dollar increases aggregate expenditures by $60 billion due to foreign consumers purchasing more U.S. goods (due to their relatively lower price). Given this, the U.S.'s AD Curve will likely:

If businesses have positive expectations about the future demand for goods and services (i.e. high demand from consumers in the future), businesses will react by causing:

a leftward shift in the AD Curve.

Suppose prices for almost all goods and services in the U.S. are expected to decrease in the future. This would most likely:

Explanation / Answer

Answer 1:

Increase in aggregate equilibrium income = 1 / 1- Marginal propensity to consume = 1/ 1-0.6 = 1/.4 = 2.5

Thus, equilibrium income of the economy will increase by 2.5 * $ 100 = $250.

Answer 2:

Shift by more than $60 billion. The AD curve will shift by more than $60 billion due to multiplier effect of increase in aggregate expenditure.

Answer 3:

This will lead to rightward shift of the aggregate demand curve of the economy as investment in the economy will increase.

Answer 4:

Shift the AD curve of the US to left. This is because it will decrease the aggregate demand curve in present.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.