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1. (a) Suppose the government increases taxes. What would happen to the AE curve? Explain.
(b) Suppose consumers decide to spend less of every dollar of income earned then previously. What would happen to the AE curve? Explain.
2. List four reasons why analyzing the economy is not as precise as the multiplier model makes it appear.
3. The mpe for the economy is .67. Autonomous expenditures are $5,000.
a. What is equilibrium income for the economy?
b. Demonstrate graphically.
What is the share of Household A's income spent on education? Does this household consume more or less education if EF = 20 is provided by the government? What is the share of Household B's income spent on education?
Calculate the price elasticity of demand for the product below using average values for the prices and quantities in your formula.
The manager of a national retailing outlet recently hired an economist to estimate the firm's production function. Based on the economist's report, the manager now knows that the firm's production function
Suppose that natural real GDP is constant. For every 1 percent increase in the rate of inflation above its expected level, firms are willing to increase real GDP by 2 percent.
Explain how the Central Bank can set the nominal interest rate in the money market. In addition, explain how it can use expansionary monetary policy to boost GDP if the economy is in a recession.
Suppose you bought a bag of groceries at Food Lion this past September for $46.54. Calculate the price of a similar bag of groceries in 1999 prices if the CPI
The economy of a country called Econoland is described by the following desired aggregate expenditure components (all figures in billions of $). For the purposes of this question, the first set of equations will be referred to as fiscal policy1.
Consider a market-clearing economy in which output (Y 1 )depends only on the capital stock (k 1 ) and an exogenous productivity variable ( θ1 ) according to the production function y1 = θ 2 f(k 2 ).
Assuming that there are only two goods, and the other good (food) is capital intensive, show the equilibrium points of production and consumption in ALFA, before and after trade.
A monopolist faces the demand curvep =11 - Q , where Q is measured in thousands of units. What is the monopolist profit maximizing price and quantity? What is the profit?
Your company is considering an investment project that will generate after-tax cash flows of $1,000 per year for the next three years (and then be scrapped, with no salvage value).
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