1. What are the factors that affect the amounts that consumers, businesses, gove
ID: 1115701 • Letter: 1
Question
1. What are the factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the: (1point) 2. If investment increases by $20 billion and the economy's MPC is.75, the aggregate demand curve will shift rightward or leftward and by how much?(4points). Show vour calculations 3. Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC 0.4, how much will the change in investment increase aggregate demand? (4points). Show your calculations S4Explanation / Answer
Answer 1- The amount of goods and services that consumers, businesses, governments and foreigner wish to purchase depends on many factors. I have mentioned some important factors that each one is get affect from it. Suppose price level in the economy is given. A consumer would like to purchase more if it incomes increase and vice verse. Businesses would like to invest more when they get higher rate of return on their investment. They compare rate of return on investment to real interest rate. Government will spend more when MPC in the economy is high, because high MPC can increase real GDP by many folds. Thus amount of government spending depends on MPC. Foreigner will purchase more amounts of good when currency of that nation have higher value. It means one unit of money of foreign nation can buy more amounts of goods.
Answer 2 - Investment increase by $20 billion and economy has MPC = 0.75. Increase in investment will increase real GDP by,
Change in RGDP = (1/ 1-MPC) * change in investment
Change in RGDP = (1/ 1 - 0.75) * 20
Change in RGDP = 20 / 0.25
Change in RGDP = $80 billion
Real GDP will increase $80 billion and aggregate demand curve will shift rightward.
Answer 3 - Technological advancement increases investment spending by $20 billion and MPC = 0.4. The investment spending increased in the economy thus RGDP will also change more than the change in investment spending.
Change in RGDP = (1/ 1- 0.4)* 20
Change in RGDP = 20/0.6
Change in RGDP = $33.33 billion
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