Question 1

(Advanced analysis)Assume that the MPC is .8 in an economy that has an aggregate supply curve with a slope of 1.Also,suppose that the price level is flexible downward.A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by:

Accepted Answer

The answer of (Advanced analysis)Assume that the MPC is .8...

Question 2

(Advanced analysis)Assume that the MPS is .33 in an economy that has an aggregate supply curve with a slope of 1.An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by:

Accepted Answer

The multiplier is 1/(1-MPS) = 1/(1-0.33) = 1.5. So, a $10 billion increase in investment spending will shift the aggregate demand curve rightward by $10 billion * 1.5 = $15 billion. The increase in real GDP will be $15 billion * (1/slope of AS) = $15 billion * (1/1) = $15 billion.

Question 3

When deriving the aggregate demand (AD)curve from the aggregate expenditures model,an increase in U.S.product prices would cause an increase in:

Accepted Answer

An increase in U.S. product prices typically leads to higher interest rates as the central bank may raise rates to combat inflation. Higher interest rates increase the cost of borrowing, which can reduce investment expenditures by businesses.

Quiz 31: Aggregate Demand and Aggregate Supply

(Advanced analysis) Assume that the MPC is .8 in an economy that has an aggregate supply curve with a slope of 1.Also,suppose that the price level is flexible downward.A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by:

(Advanced analysis) Assume that the MPS is .33 in an economy that has an aggregate supply curve with a slope of 1.An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by:

When deriving the aggregate demand (AD) curve from the aggregate expenditures model,an increase in U.S.product prices would cause an increase in: