7. Paradox of thrift Consider a hypothetical closed economy in which there are no income taxes. If households spend $0.75 of each additional dollar they earn and save the remainder, the expenditure multiplier for this economy is The following graph shows the initial aggregate demand (AD) and short-run aggregate supply (SRAS) curves of this economy. Suppose that the economy is currently in a recession. Business firms are pessimistic about the future and do not respond to a fall in interest rates. In addition, all households are pessimistic about job prospects and desire to consume less and save more at all levels of income. As a result, personal consumption in this economy decreases by $1 billion. The reduction in personal consumption will lead to a decrease in aggregate demand by $ billion. Shift either the AD curve or the SRAS curve, or both, to show the new aggregate demand curve after the full impact of the multiplier process of the reduction in personal consumption has taken place.

Generally, as the proportion of middle-income households in a country __________, the __________ a nation's purchasing power tends to be. A. increases; greater                             B. increases; less                     C. decreases; greater                            D. decreases; less                                     E. There is no relationship at all

During the​ Covid-19 recession, from the fourth quarter of 2019 to the fourth quarter of​ 2020, consumer spending on residential construction​ ________ and consumer spending on services​ ________. Part 2 A. declined by 20​ percent; increased by 20 percent B. increased by 5​ percent; increased by 10 percent C. increased by 20​ percent; declined by 5 percent D. declined by 25​ percent; declined by 40 percent

Quèstion 4 "As disposable income increases, consumption:" O And saving both increase. O Decreases and saving increases. O And saving both decrease. O Increases and saving decreases.

Consumption Function) How would an increase in each of the following affect the consumption function? a. Consumers’ net wealth b. The price level c. Disposable income

Real Disp. Consmp. Income Spending Saving Invst Plnd Plnd Govt Net Plnd Exp. Export Exp. 10.8 GDP Tax 10 6.8 1.2 1.5 2 0.5 11 7.6 1.4 1.5 0.5 11.6 12 10 8.4 1.6 1.5 2 0.5 12.4 13 2 11 9.2 1.8 1.5 2 0.5 13.2 14 12 10.0 2.0 1.5 0.5 14.0 15 13 10.8 2.2 1.5 0.5 148 16 14 11.6 2.4 1.5 2 0.5 15.6 Note: Amounts in billions. Refer to the above table. The equilibrium real GDP is $15 billion. $14 billion. $13 billion. $12 billion.

1. Complete this chart. ***Remember, you are looking at the change in income and spending. ( Income $20,000 $40,000 $60,000 $80,000 Expenditures MPC N/A $11,000 $25,000 $35,000 $41,000 MPS N/A

Corn (lb)                  Scarves(#)U.S.                                        20                             10Mexico                                    25                               5 If the multiplier is 4 and a change in government spending leads to a cumulative $500 million decrease in aggregate spending, then initially: a. Government spending decreased by $125 million. b. Government spending decreased by $500 million. c. Taxes decreased by $100 million. d. Government spending decreased by $100 million.

In the equation S = 130 – 2T, where S is hot chocolate sales and T is temperature, sales _____ if temperature increases by 10 degrees. A. increase by 20 B. decrease by 20 C. increase by 2 D. decrease by 2

1. If "Apparent Consumption" is adjusted with captive consumption and effect of abnormal factors, one arrives at a. Minimum Consumption b. Maximum Demand c. Optimum consumption d. Effective Demand 2. What is the Price elasticity if Quantities demanded and Price levels of the Base year and following year are respectively 10000 and 9000 (Quantities) and 600 and 800 (Price levels) a. -0.02 b. -0.37 c. -1.14 d. None of the options 3. Which of the following is a method used for EIA a. Regression analysis b. Pay back period c. Seismological survey d. Computer aided EIA 4. Among the list given below which one indicates the difference in the Nature of Equity and Debt a. Claim on the Firm-residual wealth, vs. Principal and dues b. Payment/Returns-Dividend vs. Interest c. Tax treatment- post tax disbursement vs. a charge to profit d. All of the options