Question 6 5 5 pts Derive an expression for the aggregate expenditure curve and

Question 6 5 5 pts derive an expression for the

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Question 6 5 / 5 pts Derive an expression for the aggregate expenditure curve and graph it on your exam sheet labeling this initial equilibrium output as point A. Also, add this point A to your consumption function. Show all work. Draw an aggregate demand and an aggregate supply curve in the right hand graph on your exam sheet identifying this initial point as point A.
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NOTE: We are holding the price level fixed at 100 in this problem. Also, note that you that you cannot derive an expression for the aggregate demand curve, just draw it with a negative slope going through point A. NOTE: This work is to be done using the Exam Sheet 2 Part 1 C . You will upload this work, along with other work to be done on this sheet, to question #10 on this exam. Enter the word "Finished" into the text-box below when ready to move on. Your Answer: Finished Question 7 5 / 5 pts We now let G rise to 800 as the Federal Government (fiscal policy) authorities are not happy with the level of GDP. Solve for the new equilibrium output and label as point B on all three of your diagrams. Please be sure to label your diagrams completely and show all work. NOTE: This work is to be done using the Exam Sheet 2 Part 1 C . You will upload this work, along with other work to be done on this sheet, to question #10 on this exam. Enter the word "Finished" into the text-box below when ready to move on. Your Answer: Finished Question 8 2 / 5 pts What is the government spending multiplier in this problem and what does this government spending multiplier depend on? NOTE: You need to answer this question fully in the text-box located below. Be complete with your answers. This question is worth 5 points! Your Answer: Government Spending multiplier equals 10 and it depends on the marginal propensity to consume. If the MPC is high so is the government spending multiplier. If one goes up so does the other. it is 2 Question 9
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5 / 10 pts Suppose, that instead of holding prices fixed as we did in this problem, that prices were perfectly flexible, as in a classical world. Discuss, do not show, how your graphs would be different. Also, comment on what would happen to the government multiplier under the assumption of perfectly flexible prices. NOTE: You need to answer this question fully in the text-box located below. Be complete with your answers. This question is worth 10 points! Your Answer: If unlike in the problem the price level was perfectly flexible a few things would change first the consumption function would go down, because when prices increase the wealth decreases. The aggregate expenditure curve would also go down because of the change in output. The AD curve in the AS-AD diagram would go up until output returns to its normal level, and the AS curve would be vertical. Under the assumption of perfectly flexible prices, Government spending multiplier would equal zero.
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