Macroeconomics
Answer the following 6 questions. Must be 3-4 pages in APA format. Will not release funds unless it meets the requirements.
1. (Consumption) Use the following data to answer the questions below:
Consumption Real Expenditures (Bil) Saving (Bil)
Disposable Income (Bil)
$100 $150 $_____
$200 $200 $_____
$300 $250 $_____
$400 $300 $_____
a. Graph the consumption function, with consumption spending on the verticle axis and disposable income on the horizontal axis.
b. If the consumption function is a straight line, what is its slope?
c. Fill the saving column at each level of income. If the saving function is a straight line, what is its slope?
2. Consumption Function How would an increase in each of the following affect the consumption function?
a. Net taxes
b. The interest rate
c. Consumer optimism, or confidence
d. The price level
e. Consumers’ net wealth
f. Disposable Income
3. (Simple Spending Multiplier) For each of the following values for the MPC, determine the size of the simple spending multiplier and the total change in real GDP
demanded following a $10 billion decrease in spending.
a. MPC= 0.9
b. MPC= 0.75
c. MPC= 0.6
4. (Expansionary and Recessionary Gaps) Answer questions a through f on the basic of the following
(See attached graph)
a. If the actual price level exceeds the expected price level reflected in long-term contracts, real GDP equals ____ and the actual price level equals _____ in the
short run.
b. The situation described in part (a) results in a(n) ______ gap equals to ________.
c. If the actual price level is lower than the expected price level reflected in long-term contracts, real GDP equals _______ and the actual price level equals _____
in the short run.
d. The situation decribed in part (c) results in a(n) ________ gap equals to _______.
e. If the actual price level equals the expected price level reflected in long-term contracts, real GDP equals ______ and the actual price level equals ______ in the
short run.
f. The situation described in part (e) results in a(n) _____ gap equal to _______.
5. (Changes in Aggregate Supply) List three factors that can change the economy’s potential output. What is the impact of shifts of the aggregate demand curve on
potential output? Illustrate your answers with a graph.
6. (Supply shocks) Give an example of an adverse supply shock and illustrate graphically. Now do the same for a beneficial supply shock.
