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Direct and Indirect Effects of an Aggregate Demand Shock
When a demand shock occurs, its total impact on the economy can be broken down into two components. The direct effect is the initial change in spending itself. This is followed by indirect effects, which consist of the subsequent rounds of spending, production, and employment changes that ripple through the economy as the initial expenditure becomes income for others, who then also change their spending.
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Economics
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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
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Ch.3 Aggregate demand and the multiplier model - The Economy 2.0 Macroeconomics @ CORE Econ
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An economy experiences a $10 billion increase in autonomous investment. In which of the following scenarios would this initial change in spending lead to the largest total increase in national output?
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An economy experiences a sudden, autonomous increase in investment spending of $200 billion. If the marginal propensity to consume is 0.75, what are the respective direct and indirect effects on the economy's total output?
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In an economy where households spend a portion of any additional income they receive, the initial, direct change in output caused by a sudden decrease in government spending is greater in magnitude than the final, total change in output.
An economy experiences a sudden $100 billion decrease in autonomous investment spending. Households in this economy tend to spend 80 cents of every extra dollar they receive. Match each component of the resulting economic change with its correct description.
An economy's total output increases by $500 billion as a result of a shock to autonomous spending. If the subsequent, indirect effects from induced consumer spending account for $400 billion of this increase, then the initial, direct effect of the shock must have been an increase of $____ billion.
Following a sudden, autonomous decrease in spending, arrange the subsequent economic events in the correct chronological order.
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