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Defines the macroeconomic equilibrium of economy

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Reference no: EM131281658

Assuming a demand driven economy:

  1. Write down a complete, parametric system of equation that defines the macroeconomic equilibrium of this economy.
  2. Derive the AE as a function of actual national income and interpret it and every parameter of it.
  3. Solve for equilibrium national income.
  4. Using your answer in part (c), interpret the simple multiplier.
  5. Show in a graph the effect of the simple multiplier after an exogenous change in the autonomous part of the AE. Clearly and precisely explain the mechanism that generates the multiplier effect.
  6. What are the assumptions in the background of this model? Clearly discuss the importance and the effects of these assumptions on the working of the model. What happens if the assumption regarding the price level is relaxed?
  7. Graphically explain the process of deriving aggregate demand curve.
  8. Graphically show the effect of the simple multiplier for an exogenous change in autonomous aggregate expenditure using the AD curve and its connection with the AE curve.
  9. Does the simple multiplier give an accurate indication of the change in equilibrium national income if the assumption on the price level is relaxed? Explain why?

Reference no: EM131281658

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