Aggregate Expenditure, Supply, and Demand

1. For each of the following, explain whether it shifts the short-run aggregate supply curve, the long-run aggregate supply curve, or the aggregate demand curve (or more than one of these).

a. Households decide to save a smaller share of their disposable income.

b. There is an 8-week strike in the steel industry.

c. A drought in the Midwest causes poor wheat harvest.

d. The labor force participation rate increases.

2. Suppose MPC is 0.8 initially. Households then change their behavior so that the MPC falls to 0.75. What happens to aggregate expenditures? Why?

3. Explain what would cause the government purchases function to increase. Will a change in social security spending affect government purchases?

4. How is an aggregate demand curve derived? What would cause the aggregate demand curve to shift to the right?

5. What is a consumption function? Describe the graph of a consumption function and explain its shape. If total spending is consumption plus investment spending, how does an increase in the interest rate affect total spending?

All answers must be at least 75 words, all references must be cited in APA format and you are required to use BOOK: MACRO 3 ECON STUDENT EDITION BY WILLIAM A MCEACHERN

Chapter 9: Aggregate Expenditure

Chapter 10: Aggregate Expenditure and Aggregate Demand

Chapter 11: Aggregate Supply

…………………Answer Preview……………………

Households decide to save a smaller share of their disposable income will lead to a shift in the aggregate demand curve. This is because there will be a higher rate of spending which will result to a shift in the aggregate demand curve.

An 8-week strike in the steel industry will cause in shift in the short run aggregate supply curve. This is because the problem is not permanent and the economy will adjust once the strike is over and the workers are back to work.

A drought in the Midwest, which causes poor wheat……………….

APA

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