Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 31, Problem 10SPA
To determine
Illustrate graphically the effects of the business investment on aggregate
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QUESTION B2
The figure below depicts aggregate demand and aggregate supply in the nation of Pacifica in
2019.
Long-Run
AS
Short-Run
AS
AD
Real GDP
At the beginning of 2020, a wave of business optimism led producers to sharply increase their
planned investment expenditure.
a. What effect, if any, will this increased investment expenditure have in the short-run on
the Aggregate Demand curve? What effect, if any, will it have on the Short-Run
Aggregate Supply curve?
b. After the increased investment expenditure, will short-run equilibrium real GDP be above
or below potential GDP? How do you know?
The president of Pacifica is concerned about the effect of this new investment expenditure on the
economy, and she wishes to use monetary policy to move equilibrium GDP back toward
potential GDP. (For the remainder of the question, assume that the Pacifica Central Bank is
Pacifica's version of the United States Federal Reserve, that Pacifica's banking and…
1. What are the major factors that determine investment, and what impact does each have on aggregate demand?
The United States is experiencing a recession and the government takes action to fix it, we hope.
Assume that businesses are granted a tax credit on spending for machinery. Using a correctly labeled graph of the loanable funds market, show the effect of the business sector’s response on the real interest rate. Explain what happens.
Using a correctly labeled graph of aggregate demand and aggregate supply, show the impact of this tax credit on each of the following in the short-run.
Aggregate demand
Output
Explain what happens.
Given your answers above, explain what will happen to the country’s production possibilities curve in the long run.
Chapter 31 Solutions
Macroeconomics
Ch. 31.1 - Prob. 1RQCh. 31.1 - Prob. 2RQCh. 31.1 - Prob. 3RQCh. 31.1 - Prob. 4RQCh. 31.2 - Prob. 1RQCh. 31.2 - Prob. 2RQCh. 31.2 - Prob. 3RQCh. 31.3 - Prob. 1RQCh. 31.3 - Prob. 2RQCh. 31.3 - Prob. 3RQ
Ch. 31.3 - Prob. 4RQCh. 31.4 - Prob. 1RQCh. 31.4 - Prob. 2RQCh. 31.4 - Prob. 3RQCh. 31.4 - Prob. 4RQCh. 31.4 - Prob. 5RQCh. 31 - Prob. 1SPACh. 31 - Prob. 2SPACh. 31 - Prob. 3SPACh. 31 - Prob. 4SPACh. 31 - Prob. 5SPACh. 31 - Prob. 6SPACh. 31 - Prob. 7SPACh. 31 - Prob. 8SPACh. 31 - Prob. 9SPACh. 31 - Prob. 10SPACh. 31 - Prob. 11SPACh. 31 - Prob. 12SPACh. 31 - Prob. 13SPACh. 31 - Prob. 14SPACh. 31 - Prob. 15SPACh. 31 - Prob. 16APACh. 31 - Prob. 17APACh. 31 - Prob. 18APACh. 31 - Prob. 19APACh. 31 - Prob. 20APACh. 31 - Prob. 21APACh. 31 - Prob. 22APACh. 31 - Prob. 23APACh. 31 - Prob. 24APACh. 31 - Prob. 25APACh. 31 - Prob. 26APACh. 31 - Prob. 27APACh. 31 - Prob. 28APACh. 31 - Prob. 29APACh. 31 - Prob. 30APACh. 31 - Prob. 31APACh. 31 - Prob. 32APACh. 31 - Prob. 33APACh. 31 - Prob. 34APACh. 31 - Prob. 35APACh. 31 - Prob. 36APACh. 31 - Prob. 37APACh. 31 - Prob. 38APACh. 31 - Prob. 39APACh. 31 - Prob. 40APACh. 31 - Prob. 41APA
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