Question

1.) Explain effect of each of the following on either the short-run aggregate supply (SAS) curve or the aggregate demand (AD) curve.

a.) Deterioration in business expectations

b.) The 2008 global financial crisis leads to a decrease in wealth.

c.) Decrease in nominal wage rate

d.) Oil prices increase dramatically

e.) Deterioration in consumer expectations

2.) For an economy in which government expenditures is $100 billion, exports are $60 billion, imports are 15 percent of real GDP, autonomous consumption is $250 billion, investment is $350 billion, and the marginal propensity to consume is 0.75,

a.) derive the equation for the aggregate expenditure (AE) curve

b.) What are the values of the slope and the vertical axis intercept of the AE curve

c.) what is the multiplier

d.) if investment rises to $450 billion, what will be the new equilibrium real GDP?

e.) what is the impact on balance of trade in (d)?

Answer 1

The solution of first problem would be...........