In Grainland, 150 people would like to be employed (this is the supply of labor).  In order to make profits, capitalists hire some of these workers to produce grain.  Those who are not hired producing grain are unemployed.  Each employed worker produces 4 bushels of grain per year.  The price of a bushel is $1.  Workers are paid a wage of $2 per year. The workers, being relatively poor, spend all their wages buying grain to eat.  The capitalists, however, spend only half of their profits on consumption.  There is no trade with other nations. To begin with, we will ignore the government so that there are no taxes and government spending. In this case, aggregate demand depends on the above information and how much the capitalists decide to invest.  So, if they invest $100 and if 125 workers are employed…..    1. What is the total amount of savings? and  What will aggregate demand be? 2.  Will aggregate demand equal aggregate supply?

In Grainland, 150 people would like to be employed (this is the supply of labor).  In order to make profits, capitalists hire some of these workers to produce grain.  Those who are not hired producing grain are unemployed.  Each employed worker produces 4 bushels of grain per year.  The price of a bushel is $1.  Workers are paid a wage of $2 per year. The workers, being relatively poor, spend all their wages buying grain to eat.  The capitalists, however, spend only half of their profits on consumption.  There is no trade with other nations.

To begin with, we will ignore the government so that there are no taxes and government spending. In this case, aggregate demand depends on the above information and how much the capitalists decide to invest.

 So, if they invest $100 and if 125 workers are employed….. 

1. What is the total amount of savings? and  What will aggregate demand be?

2.  Will aggregate demand equal aggregate supply?