Macroeconomics
Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
Question
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Chapter 10, Problem 20QP
To determine

The shift in the AD curve when the consumption increases and the investment and government purchases remain unchanged.

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The Aggregate Expenditure Model is traditionally called the” Keynesian Cross”. Use the Aggregate Expenditure Keynesian Cross diagram to show what happens to the economy under the following conditions:  (Note that is different from the AS-AD Model.)   What happens in the model if government expenditures are increased (G↑)? What happens if taxes are raised (T↑)? What happens to the US economy if the rest of the world experiences economic growth and imports more US goods (X↑)?
In the simple Keynesian model, if aggregate expenditure is less than GDP, output will a)decline as firms increase their prices to stop the buildup of inventories b)increase as firms increase production to try to stop depletion of inventories c)remain unchanged indefinitely unless government takes action d)increase as firms cut their prices to try to stop depletion of inventories e)decline as firms cut production to stop the buildup of inventories
What happens in the simple Keynesian model if households expect lower income in the future and decide to save more today? Adjust the graph and answer the question. Assume that investment varies directly with aggregate income. Aggregate expenditure (in billions of dollars) 10 9 8 7 5 4 3 2 1 0 0 1 2 3 4 5 6 7 Aggregate income (in billions of dollars) 8 9 AE = AI C+1 10
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