What Are The Three Reasons The Aggregate Demand Curve...

a. Two macroeconomic variables that decline when the economy goes into a recession are real GDP and investment spending. GDP will decrease because the economy will be producing fewer goods and services overall. Investment spending, spending on new capital, will decrease in order to conserve and spend in other areas. The unemployment rate is one macroeconomic variable that will rise during a recession. If an economy begins producing fewer goods and services, businesses will need fewer employees to meet the production demand. 3.) List and explain the three reasons the aggregate-demand curve slopes downward. a. Three reasons the aggregate-demand curve slopes downward are the wealth effect, the interest-rate effect, and the exchange rate effect. The wealth effect explains that when the price level decreases, each consumer is wealthier because the real value of his or her dollar has increased. Wealthier consumers spend more, increasing the demand for consumption goods and services. Conversely, if the price level rises, the real value of the dollar will decrease, effectively making consumers poorer. Poorer consumers will spend less on consumption, decreasing the demand for goods and services. The interest-rate effect explains that when the price level decreases, consumers have more money left over after consumption (because prices have dropped) which they can then place in financial intermediaries (banks) who can in turn loan those funds out. An increase in the supply ofShow MoreRelatedFactors Affecting The Economy Goes Into A Recession1850 Words   |  8 Pagesemployees to meet the production demand. 3.) List and explain the three reasons the aggregate-demand curve slopes downward. a. Three reasons the aggregate-demand curve slopes downward are the wealth effect, the interest-rate effect, and the exchange rate effect. The wealth effect explains that when the price level decreases, each consumer is wealthier because the real value of his or her dollar has increased. Wealthier consumers spend more, increasing the demand for consumption goods and servicesRead MoreDemand Curve and Supply Curve2333 Words   |  10 PagesLiterature Review Demand and supply have been generalized to explain macroeconomic variables in a market economy. The Aggregate Demand-Aggregate Supply model is the most direct application of supply and demand to macroeconomics. Compared to microeconomic uses of demand and supply, different theoretical considerations apply to such macroeconomic counterparts as aggregate demand and aggregate supply. The AD-AS or Aggregate Demand-Aggregate Supply model is a macroeconomic model that explains priceRead MoreInterest and Topic10250 Words   |  41 Pages_________________________________________________ 1. Consumption function/APC/MPC 1-39 2. Saving function/APS/MPS 40-53 3. Shifts in consumption and saving functions 54-69 4 Graphs/tables: mixed consumption and saving 70-106 5. Investment demand 107-145 6. Multiplier effect 146-181 Consider This 182-183 Last Word 184-185 True-False 186-200 ___________________________________________________________________________________________________ Multiple Choice Questions ConsumptionRead MoreEconomics - Tutorial Answers26233 Words   |  105 Pages1 Managerial Economics 2010 Answers to All Tutorial Questions Topic 1 : What is managerial economics Questions from Chapter 1 of the Text (McTaggart, Findlay Parkin) Review Question 1 (pp. 4) List some examples of scarcity in Australia today. An example of scarcity at the economy-wide level would be people with lower incomes being forced to choose between food and petrol due to high prices for both. An example of scarcity at an individual level would be a person unable to afford bothRead MoreFinal Exam14001 Words   |  57 PagesCHAPTER 21 (tracking us economy) 1. (National Income Accounting) Identify the component of aggregate expenditure to which each of the following belongs: a. A U.S. resident’s purchase of a new automobile manufactured in Japan b. A household’s purchase of one hour of legal advice c. Construction of a new house d. An increase in semiconductor inventories over last year’s level e. A city government’s acquisition of 10 new police cars. a. Net exports b. Consumption Read MoreEcon: Multiplier Effect1343 Words   |  6 Pagesspend all of their income on consumption; part of their income is withdrawn as net savings, Net taxes and Import expenditure. This happens through another three agents: Banks, Government and Abroad. These agents also represent part of the demand for firm’s output. It is an additional component of aggregate demand called injections. We divide three types of injections caused by these agents: Investment (by banks), Government expenditure (government) and Export expenditure (by abroad) In the firstRead MoreEconomics12898 Words   |  52 Pagesheart of the study of economics and the reason behind its establishment. Authors have defined scarcity in various way some if which are complexly stated. One author defines scarcity as a commodity or service being in short supply, relatives to its demand (Kapur 1997) which implies a constant availability of commodity or economic resource relatives to the demand for them. In quantitative terms, scarcity is sad to exist when at a zero price there is a unit of demand, which exceeds the available supplyRead MoreEconomics : Basic Economic Concepts Essay3027 Words   |  13 PagesSocial Science Basic Economic Concept Jordan Mcdowell Civics K.David 5 December 2016 . Economics a Social Science Basic Economic Concept Scarcity Supply and Demand Utility Measurement of Economic Performance Gross domestic product (GDP) National Income and Price Determination Stabilization Policies Demand management policy Fiscal policy Monetary Policy Economic Growth Open Economy: International Trade and Finance To understand economics, one must first exploreRead MoreThree Principles Describe How Economy as a Whole Works11284 Words   |  46 PagesSolutions to Quick Quizzes Chapter 1 1. There are many possible answers. 2. There are many possible answers. 3. The three principles that describe how the economy as a whole works are: (1) a country’s standard of living depends on its ability to produce goods and services; (2) prices rise when the government prints too much money; and (3) society faces a short-run tradeoff between inflation and unemployment. A country’s standard of living depends largely on the productivity of its workers, whichRead MoreThe Rising Cost Of Higher Education2468 Words   |  10 Pageshourly wages, it is becoming harder and harder for the average American family to afford going to college. What factors have been driving this large rise in tuition prices? This thesis aims to set up a supply and demand framework to analyze the various forces that may be driving the price of higher education to rise above the Consumer Price Index over time. After defining long-run supply and demand for the higher education market, this thesis ad dresses economy-wide factors and summarizes the findings