1. Using Aggregate Demand and Aggregate Supply depict what will happen should the population decide to...

1. Using Aggregate Demand and Aggregate Supply depict what will happen should the population decide to save more. (Rationalize and depict two correct answers on separate graphs)

2. Using Aggregate Demand and Aggregate Supply depict what will happen should industry invest more in capital equipment.

Expert Solution

Increase in savings will translate into lower consumption levels, thereby leading to reduced demand and shifting the demand curve to the left. When the demand curve is shifted to the left, the equilibrium price level falls down. Further, increased savings also translates into increased investment. Increased investment leads to increased supply and thereby shifting the supply curve to the right. When the supply curve shifts to the right, the price level falls down further.

An increase in industry investment in capital equipment leads to increased supply of goods, thereby causing the supply curve to shift to the right. An increase in capital investment also leads to increased profit levels for the firms, which further translates into increase wages/income levels of the workers. This increased income levels means that there is increase in consumption levels as well, which shifts the demand curve to the right. A rightward shift of demand curve leads to increase in equilibrium price level.

Rahul Sunny answered 2 years ago

Using Aggregate Demand and Aggregate Supply depict what will happen should the government lower the personal...

Using Aggregate Demand and Aggregate Supply depict what will happen should the government lower the personal income tax rate. Using Aggregate Demand and Aggregate Supply depict what will happen should the Bank of Canada buy bonds in the open market. Using Aggregate Demand and Aggregate Supply depict what will happen should the government increase corporate income tax rates. Using Aggregate Demand and Aggregate Supply depict what will happen should the Bank of Canada lower the Bank Rate. (Rationalize and depict...

Using the aggregate supply and demand model, illustrate what will happen in the short run and...

Using the aggregate supply and demand model, illustrate what will happen in the short run and long run when the economy suffers a supply shock.

If aggregate demand decreases and short run aggregate supply remains the same then what will happen...

If aggregate demand decreases and short run aggregate supply remains the same then what will happen to price levels? Group of answer choices A) Stay the same B) Increase C) Decrease D) Remain constant 2) If short run aggregate supply decreases and aggregate demand stays the same then what happens to price levels? Group of answer choices A) Increase B) Decrease C) Stay the same D) Remain constant 3) Which of the following best describes the economy during time of...

1. From the perspective of someone using aggregate-demand and aggregate supply analysis, what is the impact...

1. From the perspective of someone using aggregate-demand and aggregate supply analysis, what is the impact of a tax cut when the economy is operating above full employment. Is this a wise policy? Why or why not? 2. From your readings, what is meant by each of the following? a) MPC b) MPS 3. Explain briefly how spending can multiply, and then calculate the spending multiplier when the MPC is a. 0.75 b. 0.8 c. 0.6 pleas answer them by...

1. Using the aggregate demand (AD), the short-run aggregate supply (SRAS), and the long-run aggregate supply...

1. Using the aggregate demand (AD), the short-run aggregate supply (SRAS), and the long-run aggregate supply (LRAS) curves, briefly explain how an open market purchase will affect the equilibrium price level (P) and real output (Y) in the short run. Assume the economy is initially in a recession. 2. Using the quantity equation (the equation of exchange) briefly explain the quantity theory of money. Specifically, how the quantity theory of money explains why inflation occurs.

1.) Show on a graph (using the aggregate demand and aggregate supply model) the effects of:...

1.) Show on a graph (using the aggregate demand and aggregate supply model) the effects of: a.) A decrease in aggregate demand/recession (show what happens both in the short-run and in the long-run and make sure to explain your results) b.) Expansionary fiscal policy (meaning reduction in taxes or increase in government spending) trying to stimulate the economy to get it out of the recession.

Use aggregate supply and demand diagrams to explain what would happen to GDP and inflation in...

Use aggregate supply and demand diagrams to explain what would happen to GDP and inflation in the following circumstances. Remember, you start the analysis with AD and AS graphed with an equilibrium PL and Q/GDP. Then an “event” takes place. Determine if it is AD or AS, then shift the curve appropriately. Identify the new Price Level and GDP. Say if equilibrium PL increases/decreases and equilibrium GDP increases or decreases. Consumers decide to cut back their savings, and buy more...

1. Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply...

1. Are the effects of an increase in aggregate demand in the aggregate demand and aggregate supply model consistent with the Phillips curve? Explain 2. Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve 3. In the long run what primarily determines the natural rate of unemployment? In the long run what primarily determines the inflation rate? How does this relate to the classical dichotomy?

Question 1: Suppose an economy is in equilibrium. a) Using aggregate demand and aggregate supply, illustrate...

Question 1: Suppose an economy is in equilibrium. a) Using aggregate demand and aggregate supply, illustrate the equilibrium. Do not forget to include the long-run aggregate supply. b) Now suppose the central bank decided to increase the money supply in the economy. Using the theory of liquidity preference and the money market graph, illustrate what is going to happen to the aggregate demand. c) Draw the new short-run equilibrium of the economy, as a result of the shift in aggregate...

1. Using the Aggregate Demand-Aggregate Supply logic of Chapter 10, suppose that at first, the economy...

1. Using the Aggregate Demand-Aggregate Supply logic of Chapter 10, suppose that at first, the economy is at long-run equilibrium, on both the short-run and long-run aggregate supply curves (in other words, unemployment is at the Natural Rate of Unemployment). Then, government spending rises with no change in taxes. A. What happens in the short-run to output (Y) and the prices of goods? Explain why using Aggregate Demand and Supply logic (you don’t need to draw the graphs unless you...

Question