Question

In: Economics

Given a long-run aggregate supply curve, what would the aggregate demand curve illustrate? a. the price...

Given a long-run aggregate supply curve, what would the aggregate demand curve illustrate?

a.

the price level and the output level
b.

only the output level
c.

only the price level
d.

only the income level

Other things constant, how would a smaller marginal propensity to save affect the marginal propensity to consume?

a.

The marginal propensity to consume would be negative.
b.

The marginal propensity to consume would remain the same.
c.

The marginal propensity to consume would become larger.
d.

The marginal propensity to consume would become smaller.

Solutions

Expert Solution

A long run Aggregate supply curve fixes the output level. Aggregate Demand curve's position then determine only the price level.

Thus, given a long run Aggregate Supply Curve, the Aggregate Demand Curve would illustrate only the price level.

Thus, Option c is correct.

Marginal Propensity to Consume= 1–Marginal Propensity to Save.

As can be seen from the above mentioned equation, the smaller the Marginal Propensity to Save is, the larger will be the Marginal Propensity to Consume.

Thus, other things constant, a smaller Marginal Propensity to Save will make the Marginal Propensity to Consume larger.

Hence, Option c is correct.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Illustrate a graph with aggregate demand, short-run aggregate supply and long-run aggregate supply all intersecting. Then,...
Illustrate a graph with aggregate demand, short-run aggregate supply and long-run aggregate supply all intersecting. Then, show what happens in the short-run when the government increases taxes. What happens to the price level and output in the short-run? Finally, adjust the short-run aggregate supply curve so that we are back in long-run equilibrium. What is the long-run effect of the increased taxation on output and the price level? Be sure to include your illustrations.
Draw a diagram with an aggregate demand curve, a short-run aggregate supply curve, and a long-run...
Draw a diagram with an aggregate demand curve, a short-run aggregate supply curve, and a long-run aggregate supply curve, for an economy facing a recessionary gap. a) If the government does not intervene to close this gap, describe what will happen to this economy over time. Illustrate with a diagram. b) Describe the policies that the government could use to return the economy to long-run macroeconomic equilibrium, when it is facing a recessionary gap. Illustrate with a diagram. c) What...
Draw a diagram with an aggregate demand curve, a short-run aggregate supply curve, and a long-run...
Draw a diagram with an aggregate demand curve, a short-run aggregate supply curve, and a long-run aggregate supply curve, for an economy facing a recessionary gap. a) If the government does not intervene to close this gap, describe what will happen to this economy over time. Illustrate with a diagram. b) Describe the policies that the government could use to return the economy to long-run macroeconomic equilibrium, when it is facing a recessionary gap. Illustrate with a diagram. c) What...
Consider the aggregate demand/aggregate supply model of Chapter 10. Assume that the long-run aggregate supply curve...
Consider the aggregate demand/aggregate supply model of Chapter 10. Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 2. The aggregate demand curve is given by Y = MV(1/P), with M = 6,000 and V=1. a) Suppose that there is an adverse supply shock that shifts the short-run supply curve upwards, to P = 3. What are the values of P and Y in the...
Consider the aggregate demand/aggregate supply model of Chapter 10. Assume that the long-run aggregate supply curve...
Consider the aggregate demand/aggregate supply model of Chapter 10. Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 2. The aggregate demand curve is given by Y = MV(1/P), with M = 6,000 and V=1. a) Suppose that there is an adverse supply shock that shifts the short-run supply curve upwards, to P = 3. What are the values of P and Y in the...
1) For a fixed aggregate demand curve, an increase in long run aggregate supply will decrease...
1) For a fixed aggregate demand curve, an increase in long run aggregate supply will decrease prices. True False 2) An attempt to reduce current budget deficits could shift the aggregate demand curve left and cause a recession. True False 3) Contractionary fiscal policy is politically popular. False True 4) If aggregate demand increases for a given AS curve, prices will decrease False True 5) Republicans love using fiscal policy to stabilize the economy. False True
Graphically illustrate the long-run aggregate supply curve. Explain how you derive this curve with at least...
Graphically illustrate the long-run aggregate supply curve. Explain how you derive this curve with at least 200 words. Note:please explain in detail and please don't write HANDWRITING because I don t  understand your HANDWRITING ITS my book : Principles of Economics (12th Edition)
Consider the aggregate supply-aggregate demand (AS-AD) model. The long run AS curve (LAS) is considered to...
Consider the aggregate supply-aggregate demand (AS-AD) model. The long run AS curve (LAS) is considered to be vertical at the full employment level of income. Discuss briefly 2-3 practical ways how the long run AS curve can be affected (increased) by carrying out certain government policies! Are there any risks associated with an increase in the long run AS in your examples (please, briefly discuss the risks involved)?
if the short run aggregate supply curve intersects the aggregate demand curve to the right of...
if the short run aggregate supply curve intersects the aggregate demand curve to the right of potential GDP wages will rise?
if the short run aggregate supply curve intersects the aggregate demand curve to the right of...
if the short run aggregate supply curve intersects the aggregate demand curve to the right of potential GDP wages will rise?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT