Question

At various times in the past-the early $1980$s, early$1990$s, early $2000$s, and late $2000$s-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 early$1980$s, early $1990$s, and early $2000$s, 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-$2000$s 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

Short answer

Aggregate demand refers to the total amount of goods demanded by an economy over a given span of time, and is thus defined by the economy's planned total expenditure at a specific price level.

Step-by-step solution

Calculate the Aggregate demand curve

Calculating the MPC and MPS values when the multiplier value is$20-$

Calculating MPC$-$

Multiplier $=\frac{1}{1-MPC}$

$20=\frac{1}{1-MPC}$

$1-MPC=\frac{1}{20}$

$1-MPC=0.05$

$MPC=1-0.05$

$MPC=0.95$

The value of MPC is $0.95$, when value of multiplier is $20.$

Calculating MPS-Multiplier $=\frac{1}{MPS}$

$20=\frac{1}{MPS}$

$MPS=\frac{1}{20}$

$MPS=0.05$

The value of MPS is $0.05$, when value of multiplier is $20.$

Solve the Evaluate 

Calculating the MPC and MPS values when the multiplier value is$10-$

calculating MPC$-$

Multiplier $=\frac{1}{1-MPC}$

$10=\frac{1}{1-MPC}$

$1-MPC=\frac{1}{10}$

$1-MPC=0.1$

$MPC=1-0.1$

$MPC=0.9$

The value of MPC is $0.9$, when value of multiplier is $10.$

Calculating MPS$-$Multiplier $=\frac{1}{MPS}$

$10=\frac{1}{MPS}$

$MPS=\frac{1}{10}$

$MPS=0.1$

The value of MPS is $0.1$, when value of multiplier is $10$.

Solve the Evaluate 

Calculating the MPC and MPS values when the multiplier value is$8-$

Calculating MPC$-$Multiplier $=\frac{1}{1-MPC}$

$8=\frac{1}{1-MPC}$

$1-MPC=\frac{1}{8}$

$1-MPC=0.125$

$MPC=1-0.125$

$MPC=0.875$

The value of MPC is $0.875$, when value of multiplier is $8$.

Calculating MPS$-$

Multiplier $=\frac{1}{MPS}$

$8=\frac{1}{MPS}$

$MPS=\frac{1}{8}$

$MPS=0.125$

The value of MPS is $0.125$, when value of multiplier is $8.$

Solve the Evaluate 

Calculating the MPC and MPS values when the multiplier value is $5-$

Calculating MPC$-$Multiplier $=\frac{1}{1-MPC}$

$5=\frac{1}{1-MPC}$

$1-MPC=\frac{1}{5}$

$1-MPC=0.2$

$MPC=1-0.2$

$MPC=0.8$

The value of MPC is $0.8$, when value of multiplier is $5$.

Calculating MPS$-$Multiplier $=\frac{1}{MPS}$

$5=\frac{1}{MPS}$

$MPS=\frac{1}{5}$

$MPS=0.2$

The value of MPS is $0.2$, when value of multiplier is$5.$$5=\frac{1}{MPS}$