Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 24, Problem 24.1.3RQ
To determine
The factors that cause shifts in AD.
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What are variables that affect AD (also considered the Demand side of GDP)?
Suppose firms are optimistic about the outlook of the economy and they decide to increase investment. Also suppose that, simultaneously, there is a reduction in business taxes. Use the AD-AS graph to show what happens to the price level and output as a result.
Which equation represents the macroeconomic equilibrium condition in the aggregate expenditure (AE) model?
Chapter 24 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 24 - Prob. 24.1.1RQCh. 24 - Prob. 24.1.2RQCh. 24 - Prob. 24.1.3RQCh. 24 - Prob. 24.1.4PACh. 24 - Prob. 24.1.5PACh. 24 - Prob. 24.1.6PACh. 24 - Prob. 24.1.7PACh. 24 - Prob. 24.1.8PACh. 24 - Prob. 24.1.9PACh. 24 - Prob. 24.1.10PA
Ch. 24 - Prob. 24.2.1RQCh. 24 - Prob. 24.2.2RQCh. 24 - Prob. 24.2.4RQCh. 24 - Prob. 24.2.5RQCh. 24 - Prob. 24.2.6PACh. 24 - Prob. 24.2.7PACh. 24 - Prob. 24.2.8PACh. 24 - Prob. 24.2.9PACh. 24 - Prob. 24.2.10PACh. 24 - Prob. 24.2.11PACh. 24 - Prob. 24.2.12PACh. 24 - Prob. 24.2.13PACh. 24 - Prob. 24.2.14PACh. 24 - Prob. 24.2.15PACh. 24 - Prob. 24.3.1RQCh. 24 - Prob. 24.3.2RQCh. 24 - Prob. 24.3.3RQCh. 24 - Prob. 24.3.4PACh. 24 - Prob. 24.3.5PACh. 24 - Prob. 24.3.6PACh. 24 - Prob. 24.3.7PACh. 24 - Prob. 24.3.8PACh. 24 - Prob. 24.3.9PACh. 24 - Prob. 24.3.10PACh. 24 - Prob. 24.4.1RQCh. 24 - Prob. 24.4.2RQCh. 24 - Prob. 24.4.3RQCh. 24 - Prob. 24.4.4PACh. 24 - Prob. 24.4.5PACh. 24 - Prob. 24.4.6PACh. 24 - Prob. 24.4.7PACh. 24 - Prob. 24.4.8PACh. 24 - Prob. 24.4.9PACh. 24 - Prob. 24.4.10PACh. 24 - Prob. 24.2RDECh. 24 - Prob. 24.1CTECh. 24 - Prob. 24.2CTE
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- Why do the aggregate expenditure function and the aggregate demand curve both shift upward at the same time?arrow_forwardIdentify the direction of the change during a recession in each of the following: consumption expenditures, investment expenditures, and unemployment.arrow_forwardThe following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. PRICE LEVEL 360 LRAS 300 240 180 120 60 0 0 4 8 12 16 REAL GDP (Trillions of dollars) Suppose the economy is in short-run equilibrium. The consistent with full-employment output. SRAS AD 20 20 24 ? of $4 trillion drives unemployment the unemployment rate Suppose public officials are concerned about the $4 trillion gap in the economy and the resulting higher-than-expected aggregate demand. The government has decided to follow a passive approach to policymaking.arrow_forward
- the question is true or false: "An increase in business investment spending has the same effect on the level of ad as an increase in the same amount of government spending" can you explain what the answer is? Would they equal each other out?arrow_forwardDiscuss what is meant by a recessionary gap and an inflationary gap in the AD/AS model. Give examples of what will change consumption, investment, government purchases, and net exports, and thus AD.arrow_forwardThe following graph shows a decrease in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the left from AD1AD1 to AD2AD2, causing the quantity of output demanded to fall at all price levels. For example, at a price level of 140, output is now $200 billion, where previously it was $300 billion. The following table lists several determinants of aggregate demand. Complete the table by indicating the change in each determinant necessary to decrease aggregate demand. Change needed to decrease AD Wealth (increase/ decrease) Taxes (increase/ decrease) Expected rate of return on investment (increase/ decrease) Incomes in other countries (increase/ decrease)arrow_forward
- Will the shift of SRAS to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of SRAS to the left?arrow_forwardThe following graph shows the short-run and long-run aggregate supply curves (SRAS and LRAS) for an economy. Suppose there is a technological improvement that allows firms to reduce their costs of production permanently. Drag one or both of the curves on the graph to illustrate the long-term effects of this change. If you don't believe there will be any long-term effects, leave the curves where they are. 240 LRAS SRAS 200 SRAS 160 LRAS 120 80 40 6 12 18 24 REAL GDP (Trillions of dollars) Assuming aggregate demand is not affected by the technological improvement, the long-run effect of this v supply shock is v in aggregate output and v in the price level. PRICE LEVELarrow_forwardDerive AD curve using Y=AE and show the shifts of AD curve.arrow_forward
- suppose there is a permanent upward shift of the Federal Reserve’s reaction function.What will be the short-run effect of the shift in the reaction function on GDP?Describe briefly how GDP returns to its potential level.arrow_forwardHow would a dramatic increase in the value of the stock market shift the AD curve? What effect would the shift have on the equilibrium level of GDP and the price level?arrow_forwardwhat is The Aggregate Expenditure Modelarrow_forward
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