Can someone please help me answer these questions (39) In an \"aggregate-demand
ID: 1124078 • Letter: C
Question
Can someone please help me answer these questions
(39) In an "aggregate-demand (AD)-aggregate-supply (AS)" framework, the stagnation and inflation) is explained by (a) Simultaneous increases in AD and AS. (b) Simultaneous decreases in AD and AS. (e) Increases in AD and decreases in AS (d) Decreases in AD. (e) Decreases in AS (40) One of the reasons the AD curve is usually drawn with a negative slope (i.e., it goes from northwest to southeast) is (a) The law of demand: people generally buy more goods and services at (b) The wealth effect: at lower price levels the real value of dollar- lower prices, and vice versa. denominated assets (especially money!) rises; People are wealthier and spend more. (c) The "crowding out" effect: at higher price levels individuals and firms must reduce their spending but government does not. Hence some private expenditures are "crowded out. All of the above. (d) (e) None of the above (41) Assume Arkania has a money supply (M) of $800 billion (Arkanian dollars) and a GDP of $1,600 billion. The price level (P) in Arkania equals 4. The country's income velocity of money" must be: (a) 4 (b) 6. c) 16ofthe (d) 16. (e) None of the above. (42) Consider a simple income-expenditure (Keynesian cross") type of model. The equilibrium level of real GDP (RGDP) in Gargantua is $6,400 billion. Then "autonomous spending" rises by $20 billion. The "marginal propensity to consume" (MPC) is 0.8. Gargantua's new equilibrium level of RGDP will be (a) $6,416 billion. (b) $6,420 billion. (c) $6,480 billion. (d) $6,500 billion. (e) $6,540 billion.Explanation / Answer
(39) (e)
When AS decreases, AS curve shifts leftward, which increases price level and decreases real GDP & output.
(40) (b)
When price level falls (rises), purchasing power of money rises (falls), increasing (decreasing) real wealth of consumers who increase (decrease) their consumption, raising quantity of aggregate output demanded, and this leads to the negative slope of AD curve.
Note: Other 2 contributing effects are Interest rate effect & Exchange rate effect.
(41) (c)
As per Quantity equation,
Money supply x Velocity = Price level x Real GDP
$800 billion x V = 4 x $1600 billion
V = $6400 billion / $800 billion = 8
(42) (d)
Multiplier = 1 / (1 - MPC) = 1 / (1 - 0.8) = 1 / 0.2 = 5
As investment rises by $1, RGDP rises by $5.
As investment rises by $20 billion, RGDP rises by ($20 billion x 5) = $100 billion.
New RGDP ($ Billion) = 6,400 + 100 = 6,500
NOTE: As per Chegg answering policy, first 4 questions are answered.