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    Macroeconomic Problem Solutions

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    11) Alden has a summer beach cottage that he has owned for many years. The cottage is valued at $100,000. This year, Alden spends $300 on paint and $500 on trees, and then paints the exterior of the cottage and plants the trees himself. If he had hired a professional painter it would cost $1000 to paint the cottage ( not including the cost of paint), and if he had hired a professional landscaper, it would have cost $375 (not including the cost of the trees) to do the planting. How much does Alden's improvements to the cottage add to GDP this year? the increase in GDP would be $ -----------.

    12) Real time data analysis exercise The following table contains income and consumption data from Fred for the quarter of 2015. Real time data provided by Federal reserve economic data (FRED) federal reserve bank of saint Louis.
    title value
    personal income $15,604.9 billion
    disposable personal income $13,618.1 billion
    personal consumption expenditures 12,429 billion
    Since personal consumption expenditures are exceeded by disposable income, the implication is that the fourth quarter of 2015 saw households engaged in ---------------.

    13) The graph shows the aggregate demand curve in a representative economy. Suppose that there is a decrease in taxes. using the line drawing tool, show the effect on the aggregate demand curve, and label your new curve .

    14) Suppose that the full employment level of nominal GDP rises in one year from $13.8 to 14.2 trillion. The long -run equilibrium price level, however, remains unchanged at 115. By how much ( in real dollars) has the long run aggregate supply curve shifted to the right from one year to the next? $ ---------trillion ( round answer to two decimal places.)

    15) suppose that the position of a nation's long run aggregate supply (LRAS) curve has not changed , but its long - run equilibrium price level has decreased.
    factors
    a) a fall in the value of the domestic currency relative to other world currencies.
    b.) a decrease in the quantity of money in circulation
    c) an increase in the labor force participation rate
    d.) an increase in taxes
    e) a fall in real incomes of countries that are key trading partners of this nation
    f) increased long -run economic growth
    Of the factors given above, which could account for the price level decrease with constant LRAS?
    a) factors a, c, and f
    b) factors b, d, & e
    c)factors b, c, d, &f
    d) factors c &f

    16) Consider the accompanying diagram when answering the questions that follow. Suppose that the current price level is P2. In this case, the price will fall toward P1 because
    a) actual real GDP would be greater than total planned real expenditures
    b.) inventories of unsold goods would begin to accumulate
    c.) firms would stand ready to offer more services than people wish to purchase
    d). all of the above
    e.) a and b, but not c

    22) an economy's consumption function is depicted in the table below.
    disposable income yd ($ billions) consumption c ($billion)
    0 100
    125 188
    250 275
    375 363
    500 450
    625 538
    The economy's marginal propensity to save is
    a. $12 billion b. 0.30 c. 0.70 d. 0.032

    24)Complete the following table which depicts a hypothetical economy in which the marginal propensity to consume is constant at all levels of real GDP and investment spending is autonomous. Equilibrium real GDP is equal to $8,000. There is no government. real GDP consumption saving investment
    $2000 $2,500
    4000 $ 4,000
    6000 $ 5,500
    8000 $ 7,000
    10,000 $8,500
    12,000 $10,000

    25) The marginal propensity to consume (MPC) is .60. The multiplier is --------- ( round answer to one decimal place.)

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    Solution Preview

    11) GDP is the value of final goods and services. GDP will only increase by the cost of the paint and the trees $800 as these two items are finals goods for him. The costs associated with another person completing these jobs is extraneous information.

    12) Households are generally engaged in savings when disposable income is greater than expenditures--they are not spending all that they are bringing in.

    13) A decrease in taxes will cause an increase in ...

    Solution Summary

    This solution addresses several aspects of macroeconomics problems.

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