Assignment Example | Topics and Well Written Essays - 500 words - 208

Assignment Example The equations of the model are: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. Total autonomous spending in this model is 12) Consider the following news headline: "Business community gloomy about the economy-investment plans axed." Assuming that aggregate output is demand-determined, what effect will this have, all other things equal, on the AE function and on equilibrium national income? 14) Consider a simple macro model with a constant price level and demand-determined output. Suppose desired aggregate expenditures are less than the current level of national income. The vertical distance between the AE curve and the 45-degree line represents Generally, a decline in interest rates significantly boosts consumption, for this induces individuals to borrow from banks; borrowings used for consumption expenditures. An increase in the interest rate, however, sends negative signals to the market, in effect, reducing borrowings used for consumption expenditures. A brief look suggests that anticipated changes in income, which may entail tax changes, indeed impacts consumption in one way or the other. The precise effect, however, depends on whether the perceived changes are temporary or permanent. An anticipated cut on income will automatically reduce consumption expenditures. Increases in income will thus boost consumption. The challenge, therefore, depends on the specific expectations and contexts in which the increases or decreases are implemented. Each of the following headlines describes an event that will have an effect on desired aggregate expenditure. Which component (or sector) of AE would be affected? What will be the effect on equilibrium national income? Explain The component of aggregate expenditure that would be affected with the minister’s pledge is the Consumption component. Basically, the announcement will leave workers with an increment in their