Questions 1–13 Using The Data From The Study Guide Page 124

Questions 1 13use The Data From The Study Guide Page 124 3for A Giv

QUESTIONS 1-13: Use the data from the STUDY GUIDE page 124 #3: For a given nation, suppose the table shows the relationship between real consumption and real disposable income (real GDP): What is the value of the average propensity to consume at $200 real GDP? What is the value of the average propensity to consume at $400 real GDP? What is the value of the average propensity to save at $200 real GDP? What is the value of the average propensity to save at $400 real GDP? What is the value of the marginal propensity to consume? What is the value of the marginal propensity to save? If this nation consumes $50 more at each level of real GDP than shown in the table, is this a SHIFT in the consumption function or a MOVEMENT ALONG the consumption function? If the nation's level of real GDP decreases from $440 to $280, is this a SHIFT in the consumption function or a MOVEMENT ALONG the consumption function? Compute the value of the Keynesian spending multiplier. Give the amount of the change in the equilibrium level of Real GDP due to a $6 increase in investment expenditures. Give the amount of the change in the equilibrium level of Real GDP due to a $4 decrease in consumption expenditures. Give the amount of the change in the equilibrium level of Real GDP due to a $6 increase in investment expenditures. Give the amount of the change in the equilibrium level of Real GDP due to a $4 decrease in consumption expenditures and a $6 increase in investment expenditures at the same time. Suppose the equilibrium level of Real GDP decreases by $20. What was the amount of the change in autonomous expenditures which caused this to happen? McConnell text p. 252, #9a McConnell text p. 252, #10 Use shifts of the AD and AS curves to explain the cost-push inflation of the 1970s. What is the mathematical term to describe the relationship between real consumption and real GDP? What is the mathematical term to describe the relationship between real saving and real GDP? What happens to the value of the APC as real GDP decreases? What happens to the value of the APS as real GDP decreases? APC + APS = MPC + MPS: TRUE OR FALSE? Briefly summarize Say's Law. Briefly summarize the Classical view of how the economy works. What historical event caused a change in thinking about the way the economy works? Briefly summarize the Keynesian view of how the economy works. What is the difference between the investment demand curve for a business and the investment schedule for an economy? What is the difference between the equilibrium level of real GDP and the full-employment level of real GDP in the Keynesian model? Questions : For each of the following, describe the change in CONSUMPTION (Write DECREASE or INCREASE.) that would result from each of the following changes in determinants. Assume that nothing else is changing besides the identified determinant. A decrease in the value of the financial assets owned by consumers. An increase in taxes paid by households. A decrease in the level of real interest rates. Questions : For each of the following, describe the change in INVESTMENT (Write DECREASE or INCREASE.) that would result from each of the following changes in determinants. Assume that nothing else is changing besides the identified determinant. An expectation of a recession. An increase in labor costs. A new technology used to produce goods is developed. Questions : For each of the following, give the way in which each of the following determinants would have to change (Write DECREASE or INCREASE.) if it was causing a DECREASE in AGGREGATE DEMAND. Assume that nothing else is changing besides the identified determinant. consumer wealth real interest rates national income in countries abroad government spending business taxes Questions : For each of the following, describe the change in aggregate supply (Write DECREASE or INCREASE.) that would result from each of the following changes in determinants. Assume that nothing else is changing besides the identified determinant. A rise in the average price of inputs An increase in worker productivity Government antipollution regulations become less strict A new subsidy program is enacted for new business investment in productive equipment Questions 44-46: Explain each of the following outcomes as the result of a shift in AGGREGATE DEMAND or AGGREGATE SUPPLY. (IT CAN BE ONLY ONE!) Also, GIVE the direction of the shift (Write DECREASE or INCREASE). A recession deepens while the rate of inflation increases The price level rises sharply while real output and employment increase Real output rises, unemployment rate falls, and the price level rise Explain "cost-push" inflation using aggregate demand-aggregate supply analysis. Explain "demand-pull" inflation using aggregate demand-aggregate supply analysis. Questions : For each of the following, assume the economy is currently at the equilibrium level of real GDP. Suppose you are asked to provide a solution for the American President to the following problems: The economy is currently producing $100 BELOW where she would like the level of Real GDP to be. What type of expenditure gap is present? Assume the MPC for everyone in the economy is .80 and propose a Keynesian spending solution by the federal government (give dollar amount and direction). The economy is currently producing $60 ABOVE where she would like the level of Real GDP. What type of expenditure gap is present? Assume the MPC for everyone in the economy is .75 and propose a Keynesian spending solution by the federal government (give dollar amount and direction).

Paper For Above instruction

The provided data from the study guide and contextual economic concepts shed light on key macroeconomic principles, particularly concerning national income determination, consumption and saving behaviors, and inflationary dynamics. This paper examines these fundamental elements, emphasizing the relationships between consumption, saving, investment, and gross domestic product (GDP), alongside insights into shifting aggregate curves and policy implications.

Firstly, understanding the average propensity to consume (APC) and the average propensity to save (APS) at specific income levels is crucial. For example, at a real GDP of $200, the APC is calculated by dividing total consumption by GDP, while the APS is derived similarly from saving figures. As income increases, the APC usually decreases due to the marginal propensity to consume diminishing with higher income levels, whereas the APS tends to increase. At $400 GDP, the APC declines, reflecting increased saving relative to income, which underscores consumption smoothing behaviors in an economy.

The marginal propensity to consume (MPC) and marginal propensity to save (MPS) indicate the change in consumption and saving, respectively, in response to an additional dollar of disposable income. Typically, MPC plus MPS equals one, embodying the total income distribution between consumption and savings. These marginal propensities are fundamental in calculating the Keynesian spending multiplier, which measures how initial changes in investment or government spending amplify through the economy. For instance, with an MPC of 0.80, the spending multiplier is 5 (i.e., 1/(1–0.80)), meaning that a $6 increase in investment results in a $30 increase in GDP.

Changes in consumption linked to shifts in the consumption schedule reveal whether economic variations represent movements along the curve or shifts in the entire function. A $50 increase in consumption at each income level signifies a shift outward of the consumption function, often due to factors like increased wealth or optimism. Conversely, a decrease in GDP from $440 to $280, accompanied by a movement along the curve, suggests a change in GDP relative to the existing consumption levels without altering the underlying function.

Inflationary trends of the 1970s, notably cost-push inflation, emerged predominantly from supply-side shocks such as rising input prices and stricter regulatory environments. Aggregate demand and supply analyses illustrate how cost-push inflation is characterized by leftward shifts in the aggregate supply curve, leading to higher price levels and reduced output. Conversely, demand-pull inflation results from rightward shifts of aggregate demand, increasing output and price levels in tandem.

The classical model's assumption that supply creates its own demand, as encapsulated by Say's Law, was challenged by Keynesian economics following the Great Depression. Keynes argued that insufficient aggregate demand could lead to prolonged unemployment and underutilized resources. This shift in thought prompted policy responses emphasizing fiscal stimulus, notably through government expenditure increases tailored to close output gaps.

In the Keynesian framework, the equilibrium level of GDP is where aggregate demand equals aggregate supply, which might be below the full-employment level, causing unemployment. Investment demand, for a business or the entire economy, varies with interest rates and expectations, affecting aggregate demand curves. Policy tools such as fiscal measures are employed to mitigate gaps—whether positive or negative—by adjusting government spending and taxation.

Determinants affecting consumption include wealth, taxes, and interest rates. A decline in financial assets or an increase in taxes reduces consumption, whereas lower interest rates often boost it due to cheaper borrowing costs. Investment determinants such as recession expectations, labor costs, and technological advancements influence investment decisions, with recession fears decreasing investment, higher labor costs discouraging expansion, and technological progress stimulating investment.

Regarding aggregate supply, inputs' price increases reduce supply, while productivity enhancements and favorable regulations increase it. Policy implications, such as subsidies or looser regulations, shift the supply curve rightward, whereas rising input prices or increased taxes on producers shift it leftward.

Analyzing inflation types, cost-push inflation stems from negative supply shocks causing rising prices and output contraction, while demand-pull results from excessive demand pushing prices upward without necessarily reducing output.

Finally, policy responses to output gaps involve calculating the necessary fiscal stimulus or contraction. The expenditure multiplier, derived from the MPC, indicates how much government spending or tax cuts are needed to achieve targeted GDP outcomes, emphasizing the importance of macroeconomic stabilization policies in managing economic fluctuations.

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