Aggregate demand and aggregate supply, Microeconomics

Assignment Help:

In a small rural town, 150 people would like to be employed (this is the supply of labor). In order to make profits, capitalists hire some of these workers to produce grain. Those who are not hired producing grain are unemployed. Each employed worker produces 4 bushels of grain per year. The price of a bushel is $1. Workers are paid a wage of $2 per year. The workers, being quite poor, spend all their wages buying grain to eat. The capitalists, however, spend only half their profits on their consumption. There is no trade with other countries.

To begin with we will ignore the government, so that there are no taxes and government spending. In this case, aggregate demand will depend on the above information and how much the capitalists decide to invest. If they invest $100, and if 125 workers are employed, rather than all the 150 people.

How many bushels will be produced? __________________

What will be the aggregate supply in dollars? $___________________

What will be the demand for consumer goods

(a) By workers? (Hint: their consumption as wages) $________________________

(b) By capitalists? (Hint: their consumption) $__________________________

What is the total amount of savings? (Hint: half of profits) $___________

What is the investment shortfall (savings minus investment)? $___________

What will aggregate demand be? $____________________

Will aggregate demand equal aggregate supply? ________________

Would you expect capitalists to continue to hire the same number, more or fewer

workers? ____________________________________________

An unemployment equilibrium occurs. If instead of 125 workers, only 100 are employed, and investment remains at $100,

How many bushels will be produced? ____________________

What will be the aggregate supply in dollars? $____________________

What will be the demand for consumer goods

(a) By workers? $_____________

(b) By capitalists? $____________

What is the total amount of savings? $___________________

What is the investment shortfall (savings minus investment)? $__________

What is the sum of C + I?

Will aggregate demand equal aggregate supply? ______________________

Would you expect capitalists to continue to hire the same number, more or fewer

workers? Why or Why not? (use actual numbers in calculating the level employment).


Related Discussions:- Aggregate demand and aggregate supply

Monopoly, unique products in monopoly

unique products in monopoly

Balance of payments and developing economies, Balance of Payments and Devel...

Balance of Payments and Developing Economies: It is well-known in development economics that UDCs invariably start as debtor economies. In the process of development itself, t

Changing the surveillance framework, Changing the Surveillance Framework: ...

Changing the Surveillance Framework: Part of the challenge entails reorienting surveillance, the process through which the BW institutions policy advice is delivered, to make

Capacity utilization, discuss ho capacity utilization and product different...

discuss ho capacity utilization and product differentiation affect internal rivalry and entry barriers with the analytical framework of the porter five forces model. use the econom

What is extracellular digestion, Extracellular digestion is that in which f...

Extracellular digestion is that in which food breaking into utile molecules that can be internalized by the cell is completed in the extracellular space, i.e., outside the cell. In

What does the basic neoclassical model assume about market, What does the b...

What does the basic neoclassical, or traditional, model of economics assume about markets? It supposes that markets are perfectly competitive and smoothly functioning, and thos

Demand of pepsi cola goes up, If the quantity demanded of Pepsi Cola goes u...

If the quantity demanded of Pepsi Cola goes up, and its supply enhances what will occur in the market for Pepsi?

Minimum welfare level for the poorest senior household, Consumer Behavior: ...

Consumer Behavior: The government considers different calculations to help senior citizens with their increasing heating bills. One proposal on the table is to pay 20% of senio

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd