write your answers, as long as they are legible. Most students find that it is easier to hand draw the graphs. 1. Assume that consumer confidence decreases, so that fixed consumption decreases by 200 (billions of $, assume that Y is measured in B of $). Furthermore, the marginal propensity to consume is 80%. Using the 4- panel diagram, you will determine what happens in each panel, except you will ignore the AD/AS panel for this question. For all graphs, label the initial equilibrium point A, the final equilibrium as point C, and you will use point B to illustrate the impact of the exogenous change, (holding either ror Y constant). a. Determine the decrease in Y as a result of the decrease in consumption, Co. Does this decrease in consumer confidence shift the IS curve or the LM curve? b. Draw a 4-panel diagram (except ignore the 4" AD/AS panel), labeling as many numerical values as possible. In your diagram, label point B after Co decreases, but assuming the interest rate is constant. As noted above, point C is your final equilibrium. Be sure to label points A, B, C in all three panels. C. For your final equilibridn point C, why does aggregate output "pullback" somewhat relative to point 87 Explain intuitively.

write your answers, as long as they are legible. Most students find that it is easier to hand draw the graphs. 1. Assume that consumer confidence decreases, so that fixed consumption decreases by 200 (billions of $, assume that Y is measured in B of $). Furthermore, the marginal propensity to consume is 80%. Using the 4- panel diagram, you will determine what happens in each panel, except you will ignore the AD/AS panel for this question. For all graphs, label the initial equilibrium point A, the final equilibrium as point C, and you will use point B to illustrate the impact of the exogenous change, (holding either ror Y constant). a. Determine the decrease in Y as a result of the decrease in consumption, Co. Does this decrease in consumer confidence shift the IS curve or the LM curve? b. Draw a 4-panel diagram (except ignore the 4" AD/AS panel), labeling as many numerical values as possible. In your diagram, label point B after Co decreases, but assuming the interest rate is constant. As noted above, point C is your final equilibrium. Be sure to label points A, B, C in all three panels. C. For your final equilibridn point C, why does aggregate output "pullback" somewhat relative to point 87 Explain intuitively.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter10: Consumer Choice Theory

Section: Chapter Questions

Problem 10P

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