MGEA06H3 Chapter Notes - Chapter 6-19: Aggregate Supply, Aggregate Demand, Autonomous Consumption

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24 Feb 2015

School

UTSC

Department

Economics for Management Studies

Course

MGEA06H3

Professor

Iris Au

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MGEA06H3 Full Course Notes

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Check your understanding, 7-2, questions 1 2. Check your understanding, 7-3, questions 1 3. Note: the labour demand function in the diagram is ld = 100 5w. The labour supply function in the diagram is ls = 5w. Feel free to make use of the demand and supply equations above to answer this question. An investment project costs today, in year 1, and in year 2. The project will generate an income of in year 1, in year 2, in year 3; and after that there is nothing left. If the current interest rate is 2. 75%, then this investment project is profitable. If the current interest rate is 3. 5%, then this investment project is profitable. If the current interest rate is 2. 75%, then this investment project is not profitable. If the current interest rate is 3. 5%, then this investment project is not profitable. Consider an economy that can be described by the ad-as model.

Related Questions

Total Number of Workers Hired (Persons)	Total Amount of Output Produced (Tons)
0	0
1	80
2	150
3	210
4	260
5	300
6	330
7	350
8	360

Number of Workers Willing and Able to Work	Real Wage
0	10
1000	20
2000	30
3000	40
4000	50
5000	60
6000	70
7000	80
8000	90

The following table shows the prices (P) and quantities (Q) of the three goods consumed by average households in a small country for three years. The base year is 1984. You will calculate the consumer price indices for these three years. In Canvas, enter your numbers without dollar signs, decimal places, or commas.

							Year	Good 1	Good 2	Good 3
P	Q	P	Q	P	Q		Year
1984	$20.00	2	$30.00	5	$10.00	6
2006	$40.00	4	$60.00	7	$20.00	8
2015	$51.00	4	$72.00	7	$23.00	8

Consider now the information about the supply of labor in the file named Supply of Labor - HW2. Combine this information with information about the demand for labor in the previous question. What are the equilibrium levels of real wage and employment?

Equilibrium Real Wage = () units

Equilibrium Level of Employment =() Workers

Consider the demand and supply information in the previous questions. What is the level of potential GDP in this country?

Potential GDP = units.

Consider the demand and supply information in the previous questions. Suppose that currently, the nominal wage is W = $1,000 and the price level is P = $20. Then, there are jobs available in the economy and workers are willing and able to work.

Consider the demand and supply information in the previous questions. Suppose that currently, the nominal wage is W = $1,000. If the price level increases by 25% and if the nominal wage does not change, There will be jobs available in the economy and workers will be willing and able to work.

Consider the demand and supply information in the previous questions. Suppose that currently, the nominal wage is W = $1,000. If the price level increases by 25% and if the nominal wage does not change, the labor market will be thrown out of equilibrium. To restore equilibrium, the nominal wage must change to dollars.

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1. Explain why economics is a study of choices. Why do we have to make choices?

2. What are the economic resources? Why are they scarce?

3. Outline the differences between macroeconomics and microeconomics.

4. What are the economic questions? How is each question answered?

5. Outline the interaction of supply, demand, and price.

6. What is the difference between a buyers and a sellers market? Provide examples of each in your answer.

7. What causes equilibrium? How does price react?

8. What is the marginal principle? How can you apply it as a consumer?

9. & 10. We all hear talk about the dependency of oil and how higher oil prices affect our economy. Why have we not made greater strides to energy efficiency? Make sure you have at least two references to back your opinion.

These questions cover an expansionary monetary policy. Assume the textbook presentation where monetary policy works without any problem. Except for question 1, your answers can be a single word.

1) Give a brief summary of the macroeconomic circumstances that would lead the

Federal Reserve to engage in an expansionary policy.

2) Would the Fed buy or sell government debt assets with banks?

3) Would bank reserves increase, decrease or no change?

4) Will the monetary base increase, decrease or no change?

5) Will the supply of fed funds increase, decrease or no change?

6) Will the fed funds interest rate increase, decrease or no change?

7) Will the yield curve shift up or down?

8) Will longer term interest rates (e.g. 10-year T-Note) increase, decrease or no

change?

9) How are longer term interest rates determined?

10) In response to the change in longer term interest rates, will investment increase,

decrease or no change?

11) Will the growth rate of aggregate demand increase, decrease or no change?

12) Will the growth rate of aggregate supply increase, decrease or no change?

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MGEA06H3 Chapter Notes - Chapter 6-19: Aggregate Supply, Aggregate Demand, Autonomous Consumption

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