3. Explain what the APS tells us about people s spending and saving habits.
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1 National Income and Price Determination Reading Guide Chapters 9, 10 and 11 Chapter 9: Building the Aggregate Expenditures Model Objective Explain how the consumption schedule helps us find equilibrium GDP. Consumption and Saving p Explain what the APC tells us about people s spending and saving habits. 2. What is the formula for APC? 3. Explain what the APS tells us about people s spending and saving habits. 4. What is the formula for APS? 5. Explain how economists use the word marginal. 6. Explain what the MPC measures. 7. What is the formula for MPC? 8. Explain what MPS measures. 9. What is the formula for MPS? 10. Explain the basic determinant of the amount households will have and spend. 11. Explain the following factors that determine consumption and savings: a. Wealth b. Expectations c. Taxation d. Household Debt
2 Chapter 10: Aggregate Expenditures Objectives Determine the size of the spending multiplier and asses its impact on AD. 2. Define the balanced budget multiplier. Changes in Equilibrium GDP and the Multiplier p What is the multiplier effect? 2. What is the formula used for calculating the multiplier? 3. Explain the rationale for the multiplier effect. International Trade and Equilibrium Output p What is the difference between a closed and an open economy? Adding the Public Sector p (fill in the blank with increase or decrease) 5. An increase in Government (public) spending will result in a(n) in GDP. 6. An increase in taxes will result in a(n) in GDP 7. A decrease in Government spending will result in a(n) in GDP 8. An decrease in taxes will result in a(n) in GDP Balanced Budget Multiplier p. 193 (fill in the blank) Government spending has a impact on aggregate expenditures. Government spending is a component of aggregate expenditures. When government purchases increase, the increases by the same amount. BUT, a change in taxes affects aggregate expenditures by changing disposable income and thereby changing. A lump sum tax increase will (increase or decrease) aggregate expenditures but only by the amount of the tax times the. Equilibrium versus Full-Employment GDP p What is a recessionary gap? 10. What is an inflationary gap?
3 Chapter 11: Aggregate Demand and Aggregate Supply Objectives List the determinants of aggregate demand. 2. Distinguish between changes in AD and a change in price level causing movement along the AD curve. 3. List reasons why the AD curve is down sloping. 4. List the determinants of aggregate supply 5. Distinguish between changes in AS and a change in price level causing movement along the AS curve. 6. Explain and demonstrate the shape of the AS curve in the short run and long run; define and show the full-employment level of output. 7. Determine the importance of the shape of the AS curve on the effects of change in the AD curve. 8. Determine equilibrium using an AD/AS graph and show the effects on price level and real GDP when equilibrium changes in both the long run and the short run. Aggregate Demand p What is aggregate demand? 2. Draw a properly labeled aggregate demand curve. 3. There are three reasons that the aggregate demand curve is downward sloping. Explain: a. real-balances effect b. interest-rate effect c. foreign purchases effect 4. If there is a change in the price level what will happen to: p. 206 a. aggregate spending b. GDP c. aggregate demand curve 5. Consumer spending is one of the determinants of demand or demand shifters. Explain how each of the following effect consumer spending and thus aggregate demand: a. consumer wealth b. Consumer expectations c. household indebtedness d. taxes
4 6. Investment spending is a determinant of aggregate demand. How do each of the following effect investment spending and thus aggregate demand: a. real interest rates b. expected returns 7. How does a change in government spending effect aggregate demand? 8. How does a change in net exports spending effect aggregate demand? Aggregate Supply p What is aggregate supply? We will not use the aggregate supply curve that is explained in this section on pages Skip this for now and go on to Determinants of Aggregate Supply Input prices are a determinant of aggregate supply or supply shifter. How do each of the following aspects of input effect aggregate supply: a. land b. labor what % of input costs are labor? c. capital d. entrepreneurial ability e. prices of imported resources f. market power 11. Productivity is a determinant of aggregate supply. How does productivity effect aggregate supply? 12. How does a change in taxes and subsidies effect aggregate supply? 13. How does Government regulation effect aggregate supply?
5 We will use the short-run and long-run aggregate supply model found in chapter 16. Skip ahead to page 306 to answer the next group of questions. Short-run and Long-run aggregate supply p What happens to nominal wages in the short run? 15. How would an economist explain what happens to wages in the long run? p Draw a properly labeled short run aggregate supply curve. 17. When price levels rise... (in each blank write increase or decrease p. 308) a. firms revenues b. firms profits c. firms their output d. the nation s unemployment rate 18. When price levels fall... a. firms revenues b. firms profits c. firms production d. the nation s unemployment rate Long Run Aggregate Supply p When price levels rise what happens to workers buying power (real wages)? 20. In order to restore their buying power workers nominal wages increase. How does this affect the aggregate supply curve? 21. What is the long-run outcome of a decrease in price level? 22. Draw a properly labeled graph that includes SRAS (short run aggregate supply) LRAS (long run aggregate supply) and AD (aggregate demand). Return to chapter 11 and read pages Remember as you do this that we will deal with the intermediate range of the AS curve only.
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