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    Aggregate Demand

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    You have been appointed economic advisor to Examland. The mpc is 0.6; investment is $1000; government spending is $8000; consumption is $10000; and next exports are $1000.
    a. What is the level of income in the country?
    b. Net export increases by $2000. What will happen to income?
    c. What will happen to unemployment? (Remember Okun's rule of thumb)

    9. Let D be the quantity of demand, S be the quantity of supply and P be the price in US dollars. The relationship between Quantity of demand and price can be represented by:
    D = 10 - 2*P, While the relationship between supply and price is S = 2 + 3*P

    a. What is the equilibrium price? What is the equilibrium quantity of supply and demand?
    b. If the government set the price to 3, will there be surplus supply or surplus demand? What is the quantity of surplus demand or surplus demand?

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    Solution Preview

    You have been appointed economic advisor to Examland. The mpc is 0.6; investment is $1000; government spending is $8000; consumption is $10000; and next exports are $1000.
    a. What is the level of income in the country?
    Aggregate Income = Aggregate Output = C + I + G + NX
    = 10000+1000+8000+1000 = $20000

    b. Net export increases by $2000. What will happen to income?
    Net export increases by $2000, then NX=$3000
    However, since MPC =ΔC / ΔY, or ΔC = MPC * ΔY
    When ...

    Solution Summary

    Aggregate Demand is depicted.

    $2.19