Economics 1022A/B Chapter Notes - Chapter 27: Disposable And Discretionary Income, Real Interest Rate, Autonomous Consumption
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16 Sep 2013
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ECON 1022A/B Full Course Notes
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Keynesian model explains fluctuations in aggregate demand at a fixed price level by identifying expenditure plans. In a keynesian model, all firms set their prices and sell the quantities that their customers are willing to buy. Only if firms persistently sell greater or lesser quantities do they change the price. Because prices for firms are fixed, for the whole economy: the price level is fixed, aggregate demand determines real gdp. Aggregate expenditure is composed of consumption expenditure, investment, government expenditure and net exports. Influenced by: disposable income (aggregate income taxes + transfer payments) Aggregate income equals real gdp, so disposable income depends on real gdp. Households only spend disposable income on consumption or save it, so planned consumption expenditure plus planned savings equal disposable income. Consumption function: relationship between consumption expenditure and disposable income. Consumption expenditure in y-axis and disposable income in x-axis.
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Related Questions
a) | In the AD-AS model, stagflation does not persist, because the working of the self-correcting mechanism of the economy _____ the level of output and _____ the price level until the economy eventually returns to a long-run equilibrium state, where actual output _____ potential output.
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b) | The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that
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c) | Stagflation arises in the context of the AD-AS model when some external factor causes
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d) | If the SRAS curve is positively sloped, then a decrease in the demand for Canadian-made goods in Europe will lead to _____ in the price level, in the short run.
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e) | Which of the following will shift the aggregate demand curve to the right?
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f) | Suppose a stock market crash decreases the stock of household wealth and therefore causes autonomous consumption to fall. Which of the following is the likely result?
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g) | An economy is characterized by the AD equation P = 200 ? 0.02Y, SRAS equation P = 100 and LRAS equation Y* = 5000. In the absence of any change in policy or exogenous shocks, this economy will achieve a long-run price level of
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h) | The AD-AS model depicts a self-correcting economy. This means that the price level in the model adjusts automatically in response to a(n) _____ gap, so as to eliminate the _____ gap in the long run, without requiring any help from government policies.
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i) | The aggregate demand curve shows
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j) | Consider an economy initially at long-run equilibrium with output (Y) equal to potential output (Y*). If the SRAS is positively sloped, then a shift to the right of the AD curve will lead to _____ in the price level, in the short run. In the long run, the SRAS curve will shift to the _____ and the equilibrium will be at __________.
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