Principles of Macroeconomics

Principles of Macroeconomics Unit 5 Assignment

Chapter 9 Questions 1, 4, and 9

1) (Consumption) Use the following data to answer the questions below:

Consumption Real Disposable Expenditures Savings Income (billions) (billions) (billions) $100 $150 $__________ $200 $200 $__________ $300 $250 $__________ $400 $300 $__________ a. Graph the consumption function, with consumption spending on the vertical axis and disposable income on the horizontal axis. b. If the consumption function is a straight line, what is the slope? c. Fill in the saving column at each level of income. If the savings function is a straight line, what is its slope?

4) Consumption Function How would an increase in each of the following affect the consumptions function?

a. Net taxes

b. The interest rate

c. Consumer optimism, or confidence

d. The price level

e. Consumers’ net worth

f. Disposable income

9) For each of the following values for the MPC, determine the size of the simple spending multiplier and total change in real GDP demanded following a $10 billion decrease in spending:

MPC = 0.9

MPC = 0.75

MPC = 0.6

Chapter 10: Questions 3, 5, and 6

3. (Expansionary and Recessionary Gaps) Answer questions a through f on the basis of the following graph:

a. If the actual price level exceeds the expected price level reflected in long-term contracts real GDP equals and the actual price levels equals in the short run. b. The situation described in part (a) results in (n) gap equal  to ____________ c. If the actual price level is lower than the expected price level reflected in long-term contracts, real GDP equals and the actual price level equals in the short run. d. The situation described in part (c) results in a (n) gap equal to __________ e. If the actual price level equals the expected price level reflected in long-term contracts, real GDP equals and the actual price level equals __________ in the short run. f. The situation described in part (e) results in a (n) to ________________

5. (Changes in Aggregate Supply) List three factors that can change the economy’s potential output. What is the impact of shits of the aggregate demand curve on potential output? Illustrate your answer with a diagram.

6. (Supply Shocks) Give an example of an adverse supply shock and illustrate graphically. Now do the same for a beneficial supply shock.

References

McEachern, W. A. (2015). ECON macroeconomics (4th ed.). Stamford, CT: Cengage Learning