Consider the following simplified AE function:
AE = 350+0.8Y+0.1(M/P)
where AE is desired aggregate expenditure, Y is real GDP, M is private sector's nominal wealth, and P is the price level. Suppose that M is constant and equal to 6000.
a) Explain why the expression for AE above makes sense. Why do M and P enter the AE function?
b) Fill in the attached table
c) Plot each of the AE functions-one for price level-on the same scale 45 degree line diagram.
d) Compute the level of the equilibrium national income for each of the values of P.
e) Plot the pairs of price level and equilibrium national income on a scale diagram with P on the vertical axis and Y on the horizontal axis.
Aggregate Supply and Demand are emphasized.
Aggregate Supply/Demand And Loanable Funds Model
My question has 2 parts to it.
Say there is an annual event that brings a state over 40 million dollars on the week that it runs, bringing tourists from all over the world to the event and millions of dollars from television coverage.
What is the expended change to gross product and the price level likely to be in the short run? How can this be illustrated by an aggregate demand and supply model?
If I assume that the expenditure by the government on this event increases the government's deficit. what will be the likely effect on private sector savings and investment using the loanable funds model?View Full Posting Details