What are the assumptions for the multiplier process

Reference no: EM133408918

Questions:

1. The individual consumption function is noted as c=a + (MPC x yd). What do the letters stand for? What does the function look like when you draw it on a graph?

2. What is the difference between the individual consumption function and the aggregate consumption function (C = A + (MPC x YD)?

3. What things can shift the aggregate consumption up or down?

4. What does the book mean by production capacity? How are rates of planned investment related to productive capacity and expected future sales?

5. Define inventory investment and unplanned inventory investment. Why do economists pay careful attention to changes in business inventory levels?

6. The interest rate and the expected future level or real GDP are two principal factors that determine planned investment (lPlanned). Read Economics>>in Action on page 328 and look at Figure 28-4. How did the interest rates affect the housing boom between the 19903 and 2003? Describe in detail what you see in the graphs.

7. What are the assumptions for the multiplier process?

8. What two functions do we add together to get the AEPlanned function?

9. What is the income-expenditure equilibrium? How do we know that we have one?

10. what are the two possible sources of a shift of the planned aggregate spending line?

Reference no: EM133408918

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