BU204_10 _Finley_Joey_ Unit 9

BU204_10 _Finley_Joey_ Unit 9 - Running head: LABOR...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Decrease in government spending S D 2 D 1 E 2 E 1 R 2 R 1 Q 2 Q 3 Q 1 E 2 E 1 R 2 R 1 Q 2 Q 1 E 2 E 1 R 2 R 1 Q 2 Q 1 E 1 E 2 E 2 E 1 P 3 P 2 P 2 P 1 Q 2 Q 1 Q 2 Q 1 Inflationary Gap P 2 P 1 P 2 P 1 Recessionary gap Q 1 Q 2 Q 1 Q 2 P 2 P 1 P 2 P 1 Inflationary Gap Q 2 Q 1 Q 2 Q 1 1 Joey D. Finley Kaplan University Macroeconomics BU204 Fazlul Miah May 03, 2011
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1. Define any key terms that you feel are important in answering the following question as they are defined in the textbook and explain, in your own words what those definitions mean (5 points), and then thoroughly analyze each of the following changes in the market for loanable funds to answer the these questions Use the diagrams below, resizing them as necessary, to illustrate your analysis in explaining what happens to private savings , private investment spending , and the rate of interest if the following events occur. Assume the economy is closed (no transactions are made with foreign countries). a. Aggregate demand curve: a curve that shows the quantity of goods and services that households, firms, and the government want to buy at any price level. b. Aggregate supply curve: a curve that shows the quantity of goods and services that firms choose to produce and sell at any price level. c. Model of aggregate demand and aggregate supply: the model that most economists use to explain short run fluctuations in economic activity around its long run trend. d. Equilibrium: where Supply and Demand meet. Equilibrium in the labor market changes as: i. The capital stock or natural resources increases. ii. The technology increases and iii. Population and immigration grows. a. The government reduces the size of its deficit to zero (10 points).
Background image of page 2
i. Aggregate demand curve shifts left. Aggregate supply curve is constant. Demand shift to left means less demanded at every price. ii. If the government wants to reduce its deficit to zero, there would be a decline in the want for loanable funds, from D 1 to D 2 , equal to the reduction in the size of the deficit. The graph for a. shows amount Q 1 , Q 2 , 3 represents the amount by which the government reduces its deficit. Responding to less demand, the interest rate falls from R 1 to R 2 . iii. The drop in interest rates (R) will increase private investment spending from Q 3 to Q 2 and decrease private savings from Q 1 to Q 2 in graph for a . b . At any given interest rate, consumers decide to save more. Assume the budget balance is zero (10 points).
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
i. Aggregate demand curve is constant. Aggregate supply curve shifts right. Supply shift to right means more supplied at every price. ii.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/31/2011 for the course BUS 204 taught by Professor Enricodigiammarinojr during the Spring '10 term at Kaplan University.

Page1 / 19

BU204_10 _Finley_Joey_ Unit 9 - Running head: LABOR...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online