Aggregate demand and aggregate supply, Microeconomics

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).

Posted Date: 3/1/2013 7:22:33 AM | Location : United States







Related Discussions:- Aggregate demand and aggregate supply, Assignment Help, Ask Question on Aggregate demand and aggregate supply, Get Answer, Expert's Help, Aggregate demand and aggregate supply Discussions

Write discussion on Aggregate demand and aggregate supply
Your posts are moderated
Related Questions
chemistry assignments ,  Neutron diffraction supplements x-ray diffraction and is particularly helpful in locating hydrogen atoms. An x-ray beam is scattered primarily as a result

analyse the rise and fall in the price under market equillibrium situation?

What is the difference between MRTS & MRS?


Q. What is Heterodox Economics? Heterodox Economics:Different schools of thought (including post-Keynesian, Marxian, structuralist and institutionalist economics) which reject

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

GROWTH OF EMPLOYMENT OPPORTUNITIES: Policy failure refers to situations:   i) When the objectives of public policy are attained partially or inadequately or in a distorted

PARAMETERS FOR ASSESSING ECONOMIC REFORMS: Let it be clearly understood that liberalisation, privatisation and globalisation are means with the help of which the growth proces

Explain how a country can peg (fix) its currency to another currency. Explanation of a pegged/fixed currency should centre on how the central bank uses the currency market mech