Learn Before
Autonomous Demand as the Vertical Intercept of the AD Curve
The vertical intercept of the aggregate demand (AD) curve represents the total level of autonomous demand in the economy. This is the amount of spending that occurs even when national income is zero. In a full model of the economy, it is calculated as the sum of all income-independent expenditure components: autonomous consumption (), investment (which may depend on the interest rate, I(r)), government spending (G), and exports (X).
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Related
Effect of Government Spending on the Aggregate Demand Curve
Effect of the Interest Rate on the Aggregate Demand Curve
Autonomous Demand as the Vertical Intercept of the AD Curve
Consider two economies, A and B, that are identical in every respect (including taxes, investment, government spending, and trade) except for their households' spending behavior. In Economy A, households spend 90 cents of each additional dollar of disposable income. In Economy B, households spend 70 cents of each additional dollar of disposable income. When plotting the aggregate demand (AD) curve for each economy with AD on the vertical axis and national income on the horizontal axis, how will the curve for Economy A compare to the curve for Economy B?
Calculating the Aggregate Demand Curve's Intercept
Analysis of the Aggregate Demand Curve's Slope
In a standard graphical model where aggregate demand is plotted against national income, the aggregate demand curve is steeper than the 45-degree line because any increase in income leads to an even larger increase in planned spending.
Match each aggregate demand (AD) equation to the description of its corresponding graph. In all cases, AD is on the vertical axis and national income (Y) is on the horizontal axis.
Deriving the Aggregate Demand Curve from Economic Data
In the graphical model of the economy where aggregate demand is plotted against national income, the aggregate demand curve has a slope that is positive but less than one. This is because a portion of any increase in national income 'leaks out' of the circular flow through savings, taxes, and ____.
Arrange the following steps in the correct logical sequence to graphically construct the final aggregate demand (AD) curve for an open economy with a government, starting from the most basic spending relationship and progressively adding other components.
An economist is analyzing an economy and observes that for every $100 increase in national income, total planned spending increases by only $75. Based on this observation, the economist claims that when this economy's aggregate demand is plotted against national income, the resulting curve will be flatter than the 45-degree line that represents all points where spending equals income. Which of the following statements provides the most accurate evaluation of the economist's claim?
Critique of an Aggregate Demand Curve Representation
Role of Investment in the Aggregate Demand Model
Learn After
Analyzing Shifts in Autonomous Spending
Imagine an economy where businesses become more optimistic about future profits and, as a result, increase their planned capital expenditures by $100 billion, independent of the current level of national income. How would this change be represented on a graph with aggregate demand on the vertical axis and national income on the horizontal axis?
A widespread economic recession occurring in a country's major trading partners would, all else being equal, lead to a downward shift of the domestic aggregate demand curve's vertical intercept.
Analyzing the Components of the AD Curve's Intercept
An economy is described by a model where total spending is composed of several parts. Some parts depend on the current level of national income, while others do not. Which of the following events would cause a decrease in the total amount of spending that occurs even when national income is zero?
Consider an economy where spending that is independent of national income consists of the following: consumption of $80 billion, investment of $120 billion, government purchases of $150 billion, and exports of $50 billion. In this economy, the total planned expenditure when national income is zero is $____ billion.
A government is considering two distinct policy options to stimulate economic activity.
- Option A: Increase direct government purchases of goods and services by $100 billion.
- Option B: Implement a series of tax incentives that economists predict will raise autonomous consumption by $60 billion and autonomous investment by $50 billion.
Evaluate the two options based solely on their immediate effect on the vertical intercept of the aggregate demand curve. Which option would cause a larger upward shift?
Match each component of spending that is independent of national income with the economic event that would directly cause it to change.
Analyzing Conflicting Economic Shocks
Deconstructing Changes in Autonomous Spending