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According to Kegnesian theory, what should have determined the actual amount of the response of real consumptioa expenditures to the small increase in real GDP?

Short Answer

Expert verified

As the solution, it move to consumption curve downwards.

Step by step solution

01

Introduction

The average variable cost curve, often known as the C+1+G+X curve, is drawn with the price level held constant. The HUKU method pushes consumers to save more and consume less in order to build up their savings. This will assist them in covering the costs of health-care services.

02

Conclusion

As a result of this system, the consumption curve will move downward, and the curve depicting C+1+G+Xwill shift downwards as well. As a result of the intersection of the AD curve with the C+1+G+X curve, yearly real GDP decreases.

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Most popular questions from this chapter

At an initial point on the aggregate demand curve, the price level is 100, and real GDP is S18trillion. After the price level rises to 110 , however, there is an upward movement along the aggregate demand curve, and real GDP declines to S14trillion. If total planned spending declined by 200 billion in response to the increase in the price level, what is the marginal propensity to consume in this economy?

Take a look at Table 12-2 and consider the changes in planned real consumption and saving associated with an increase in real GDP from \(14.0 trillion to \)15.0 trillion to calculate the marginal propensity to consume.

At various times in the past-the early 1980s, early1990s, early 2000s, and late 2000s-business profit expectations plummeted, and firms cut back on their investment spending. The ratio of total investment spending to companies' aggregate profit flows decreased markedly. In each instance, real GDP declined, and the U.S. economy fell into recession. At the end of the recession intervals of the early1980s, early 1990s, and early 2000s, business profit expectations improved. Firms responded by boosting their investment spending, and both real GDP and the ratio of investment expenditures to firms' profits recovered fully. At the conclusion of the late-2000s recession, however, this ratio failed to return to its previous level. By the time you have completed this chapter, you will understand why the result during this current decade has been a sluggish improvement in real GDP and, hence, an unusually slow economic recovery.

Understand the relationship between total planned expenditures and the aggregate demand curve

Consider the table below when answering the following questions. For this economy, the marginal propensity to consume is constant at all levels of real GDP, and investment spending is autonomous. Equilibrium real GDPis equal to \(8,000. There is no government.


a. Complete the table. What is the marginal propensity to consume? What is the marginal propensity to save?

b. Draw a graph of the consumption function. Then add the investment function to obtain C+I.

c. Under the graph of C+I, draw another graph showing the saving and investment curves. Does theC+Icurve cross the45-degree reference line in the upper graph at the same level of real GDPwhere the saving and investment curves cross in the lower graph, at the equilibrium real GDPof \)8,000? (If not, redraw your graphs.)

d. What is the average propensity to save at equilibrium real GDP?

e. If autonomous consumption were to rise by $100, what would happen to equilibrium realGDP?

Identify the primary determinants of planned investment

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