Aggregate demand and aggregate supply, Microeconomics

Assignment Help:

In a small rural town, 150 people would like to be employed (this is the supply of labor). In order to make profits, capitalists hire some of these workers to produce grain. Those who are not hired producing grain are unemployed. Each employed worker produces 4 bushels of grain per year. The price of a bushel is $1. Workers are paid a wage of $2 per year. The workers, being quite poor, spend all their wages buying grain to eat. The capitalists, however, spend only half their profits on their consumption. There is no trade with other countries.

To begin with we will ignore the government, so that there are no taxes and government spending. In this case, aggregate demand will depend on the above information and how much the capitalists decide to invest. If they invest $100, and if 125 workers are employed, rather than all the 150 people.

How many bushels will be produced? __________________

What will be the aggregate supply in dollars? $___________________

What will be the demand for consumer goods

(a) By workers? (Hint: their consumption as wages) $________________________

(b) By capitalists? (Hint: their consumption) $__________________________

What is the total amount of savings? (Hint: half of profits) $___________

What is the investment shortfall (savings minus investment)? $___________

What will aggregate demand be? $____________________

Will aggregate demand equal aggregate supply? ________________

Would you expect capitalists to continue to hire the same number, more or fewer

workers? ____________________________________________

An unemployment equilibrium occurs. If instead of 125 workers, only 100 are employed, and investment remains at $100,

How many bushels will be produced? ____________________

What will be the aggregate supply in dollars? $____________________

What will be the demand for consumer goods

(a) By workers? $_____________

(b) By capitalists? $____________

What is the total amount of savings? $___________________

What is the investment shortfall (savings minus investment)? $__________

What is the sum of C + I?

Will aggregate demand equal aggregate supply? ______________________

Would you expect capitalists to continue to hire the same number, more or fewer

workers? Why or Why not? (use actual numbers in calculating the level employment).


Related Discussions:- Aggregate demand and aggregate supply

How to calculate the cpi index, When measuring price levels in the economy ...

When measuring price levels in the economy (such as when calculating the CPI index), why is a weighted average used? Because we require giving greater emphasis to prices at whi

Economic cycle, Economic Cycle The economic cycle is the long-standing...

Economic Cycle The economic cycle is the long-standing sample of alternating times of economic growth (expansion) and decline (recession), followed by changing economic indica

What is laffer curve, What is Laffer curve The Laffer curve is named af...

What is Laffer curve The Laffer curve is named after Professor Art Laffer who suggested that as taxes enhanced from fairly low levels, tax revenue received by the government wo

Describe the concept of opportunity cost, Problem 1: a. Describe the co...

Problem 1: a. Describe the concept of opportunity cost, using the production possibility curve. b. What are the fundamental problems of an economy? Describe how the command

Welfare analysis, Welfare Analysis 1-Of the following four institution...

Welfare Analysis 1-Of the following four institutions for allocating apartment to different people at different prices   i.  The competitive market  ii.  A discriminatin

Insurance, Sita expects her future earnings to be worth Rs 100. If she fall...

Sita expects her future earnings to be worth Rs 100. If she falls ill, her expected future earning will be Rs 25, There is a belief that she may fall ill 2 with probability of -3

True or false, economists would predict that if salaries increased for engg...

economists would predict that if salaries increased for engginieers and decreasded for mba braduates that fewer people would go to graduate school in business and more would go in

Atitude of consumers towards risk, find the highest premium find the actuar...

find the highest premium find the actuarialy fair premium

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd