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Exogenous Nature of Government Spending in Macroeconomic Models
Aggregate Demand Curve
Sources of Aggregate Demand Shocks
Effect of Government Spending on the Aggregate Demand Curve
A change in government spending (G), an autonomous component of aggregate demand, causes a parallel shift in the aggregate demand curve. An increase in G shifts the AD curve upward, while a decrease shifts it downward, altering the level of aggregate demand at every level of income.
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Introduction to Macroeconomics Course
Ch.3 Aggregate demand and the multiplier model - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
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Effect of Government Spending on the Aggregate Demand Curve
Effect of Government Spending on the Aggregate Demand Curve
Effect of the Interest Rate on the Aggregate Demand Curve
Investment Function within the Aggregate Demand Curve
Autonomous Demand as the Vertical Intercept of the AD Curve
How Aggregate Demand Shocks Affect Equilibrium
Effect of Autonomous Consumption on the Aggregate Demand Curve
Effect of Exports on the Aggregate Demand Curve
Effect of Autonomous Investment on the Aggregate Demand Curve
Effect of Government Spending on the Aggregate Demand Curve
Effect of the Interest Rate on the Aggregate Demand Curve
An economy experiences a sudden and widespread surge in consumer confidence, driven by positive news about future technological advancements. As a result, households begin to increase their spending on goods and services, even before any actual changes in their current income levels occur. Which of the following best identifies the initial source of this change in the economy?
Analyzing Competing Economic Events
Identifying a Government-Induced Demand Shock
Match each economic event with the primary source of the aggregate demand shock it would create.
A widespread decrease in the general price level throughout an economy, which leads to an increase in the total quantity of goods and services demanded, constitutes a positive aggregate demand shock.
Evaluating the Relative Impact of Different Demand Shocks
Disaggregating Economic Shocks
An unexpected decision by a country's central bank to significantly increase its main policy interest rate is most likely to cause a negative aggregate demand shock by directly reducing the level of autonomous ______.
Pinpointing the Initial Demand Shock
An economy's total spending is subject to various unexpected events. Which of the following scenarios describes an event that would not be classified as an initial source of a shock to aggregate demand?
Learn After
The Danger of Government Austerity in a Recession
Consider an economy where the relationship between total spending and national income is depicted by an aggregate demand curve on a graph with aggregate demand on the vertical axis and national income on the horizontal axis. If the government enacts a new policy to substantially increase its expenditure on public infrastructure, how would this change be represented on the graph?
Nature of Shifts in the Aggregate Demand Curve
Fiscal Policy Impact on Aggregate Demand
Evaluating a Fiscal Policy Proposal
A government's decision to reduce its budget for public services will cause the aggregate demand curve to shift downward, with the magnitude of the vertical shift being smaller at higher levels of national income compared to lower levels.
An economy's total planned spending is represented by a line on a graph with spending on the vertical axis and income on the horizontal axis. Why does a decrease in government expenditure cause this line to shift downwards by the same amount at every level of income?
In a macroeconomic model where total planned spending is plotted against national income, if the government decides to increase its infrastructure spending by $20 billion, the aggregate demand curve will shift upward. The vertical distance of this parallel shift will be exactly ____ at every level of income.
An economic analyst observes that a country's aggregate demand curve, which plots total planned expenditure against national income, has experienced a parallel upward shift. Which of the following scenarios provides the most direct and accurate explanation for this specific change?
An economic analyst is examining a country's aggregate demand curve, which plots total planned expenditure against national income. The analyst observes that the curve has moved. To conclude that this movement was caused specifically by a reduction in government purchases, rather than a change in the marginal propensity to consume, what specific characteristic must the observed change exhibit?
An economic advisor states: 'Our plan to increase government purchases by $100 billion will boost the economy. This action will cause the aggregate demand curve, which plots total planned spending against national income, to shift upward. The size of this upward shift will be larger at lower levels of national income, providing more support where it's most needed.' Which aspect of this statement is inconsistent with the conventional understanding of how this policy affects the aggregate demand curve?