Equilibrium in the Multiplier Model
In the multiplier model, the economy reaches equilibrium when the total output produced (Y) precisely matches the aggregate demand (AD). This state is considered stable, and the economy will maintain this level of output unless it is disrupted by an exogenous shock—a change in a factor determined outside the model, such as a shift in the marginal propensity to consume.
0
1
Tags
Economics
Economy
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
CORE Econ
Social Science
Empirical Science
Science
Ch.8 Economic dynamics: Financial and environmental crises - The Economy 2.0 Macroeconomics @ CORE Econ
Related
Subsistence Level: Definition, Equilibrium, and Population Dynamics
Temporary Gains from Technology in the Malthusian Model
Malthus's Law
Nash Equilibrium
Equilibrium in the Multiplier Model
Equilibrium in Irving Fisher's Physical Model
Imagine a simplified model of a pond ecosystem. The population of frogs remains stable at 100 individuals year after year. The birth rate of frogs exactly matches the death rate (due to predation by herons and natural causes). The food supply for the frogs (insects) and the number of herons also remain constant. One year, a prolonged drought, a factor not typically included in this simple model, reduces the insect population. Which statement best analyzes the initial, pre-drought state of the frog population?
Stability and Disruption in a Model
Analyzing Market Stability
A system described by an economic model is considered to be in equilibrium only when all variables are static and can no longer change, even in response to forces from outside the model.
Match each term related to the concept of a system's state of balance with its correct description.
Analyzing a Stable System
Analyzing System Stability
The Corner Coffee Shop Model
A simple economic model describes a local farmer's market where, every Saturday, 10 farmers consistently sell all of their 50 baskets of apples each, for a total of 500 baskets sold. This state is considered to be in balance, as it has been self-perpetuating for many weeks with no internal tendency for change. Which of the following events represents a disturbance by an external force that would fundamentally alter this state of balance?
A small bakery uses a simple model to manage its daily production. The bakery is in a stable state, consistently baking and selling exactly 100 loaves of bread each day. Suddenly, a new large office building opens next door, an event not accounted for in the original model. Arrange the following events in the logical sequence that describes the system's disruption and its movement towards a new stable state.
Goods Market Equilibrium Condition (Output = Aggregate Demand)
Graphical Determination of Equilibrium Output
Inverse Relationship Between Equilibrium Output and Unemployment
Role of Unintended Inventory Changes in Reaching Goods Market Equilibrium
Comparison of National Accounts Identity and Goods Market Equilibrium
Zero Inventory Investment as a Condition for Goods Market Equilibrium
Calculating Equilibrium Output Algebraically
Assumption of Perfectly Elastic Aggregate Supply in Demand-Side Models
A national retail chain observes that over the past quarter, its warehouses have accumulated a significant amount of unsold merchandise, far more than their forecasts predicted. Based on this information alone, what is the most likely state of the broader goods market and what is the expected response from producers?
An economy is described by the following: aggregate output is currently $500 billion, while planned aggregate demand (the total amount households, firms, and the government plan to spend) is $550 billion. Based on this information, which of the following accurately describes the state of the goods market and the immediate consequence?
If an economy's goods market is in equilibrium, which of the following conditions is necessarily true?
Evaluating an Economic Statement on Market Equilibrium
An economist makes two statements about a simple economy:
Statement 1: "The total value of goods produced in any period is, by definition, equal to the total value of goods sold to final users plus any goods that were produced but not sold."
Statement 2: "The economy is in a state of balance only when the total value of goods produced is exactly equal to the total amount of goods that all agents in the economy planned to purchase."
Which of the following best analyzes the relationship between these two statements?
An economy is initially in a state where the total supply of goods equals the total demand. Suddenly, there is an unexpected and widespread decrease in consumer desire to purchase goods. Arrange the following events in the logical sequence that describes how the market adjusts to a new, lower level of equilibrium output.
Calculating Goods Market Equilibrium
Match each state of the goods market, described by the relationship between total output and total planned spending, with its corresponding effect on firm inventories.
True or False: The fact that total production in an economy is always equal to total sales plus changes in inventory (an accounting identity) means that the goods market is always in equilibrium.
Consider a graphical model where the vertical axis represents total planned spending and the horizontal axis represents total income or output. A 45-degree line shows all points where total spending equals total output. An upward-sloping 'planned spending' line shows the total amount that households, firms, and the government intend to buy at each level of income. The economy is currently operating at a level of output where firms are producing more goods than are being purchased. Which of the following descriptions accurately locates this economy's position on the graph?
Equilibrium in the Multiplier Model
Definition of Goods Market Equilibrium
Effect of Autonomous Spending Changes on Equilibrium
Learn After
The 45-Degree Line as a Representation of Goods Market Equilibrium
An economy is in a stable state where the total value of goods and services being produced each month is equal to the total amount being purchased. Which of the following independent events would cause the economy to move to a new, different stable state?
Economic Adjustment to Disequilibrium
Assessing Economic Stability
In the context of a simple economic model where total spending determines total output, if businesses observe that their inventories of unsold goods are unexpectedly increasing, it signifies that the economy is in a stable, self-perpetuating state.
Calculating Equilibrium Output
Characteristics of Economic Equilibrium
An economy is currently producing a total output of $500 billion. At this level of output, the total planned spending (aggregate demand) by households and firms is also exactly $500 billion. Assuming no external changes to spending behavior or investment plans, what is the most likely outcome for the economy's total output in the subsequent period?
In a closed economy with no government, suppose that the total value of all goods and services produced in a given period is $800 billion. However, the total planned spending by households and firms during the same period is only $750 billion. Based on this information, what is the most likely immediate consequence for the economy?
Analyzing Economic Stability
Match each economic scenario, defined by the relationship between total output (Y) and aggregate demand (AD), with its most likely consequence for business inventories and future production decisions.
Exogenous Shock
Goods Market Equilibrium Condition (Formula)
Empirical Estimation of the Multiplier