macroeconomics

Macroeconomic Issues Question 1 Assuming no changes in administration surpassing, tax revenuees and the money tot, explain, with the help of suitable diagrams, why blend claim depends negatively on the cost train. AD = C + I + G + (X M) While there be no changes in government spending, taxes and the money supply, (law of command) amount demand depends negatively on the worth take aim. The effect of law of demand is illustrated in the ch craft above. When price level rises, quantity falls; art object P moves upwards to P1, Q wobbles to the left, Q1. As price rises, consumers argon not so willing to buy the products and might vanquish to the substitution products. Consumer receiving the headstrong income will switch to inferior goods overdue to the increase of price level. When this happen, AD pitch to the left. When price level drops, quantity rises; while P moves downwards to P2, Q shift to the right, Q2. As price drops, consumers are more will ing to buy a larger derive of the product. More goods are demanded, the curve of AD will shift to the right.

Question 2 Explain, with the help of aggregate supply and aggregate demand schedules, the effect of the following events on the price level and on the equilibrium national income:- (i)A tax squeeze holding government purchases constant with the economy in operation(p) at approximately replete capacity. When there is a sleep together in tax, consumer expenditures rises as they are more willing to spend for the lesser amount they pay for the tax. jibe to the macroeconomic equating C + I + G + (X M) = AD, the increase of consumption, investment and export contribut es to the general increase of aggregate dem! and. The curve of aggregate demand shift from AD to AD1 and the price to increase from P to P1. This has generate price inflation to occur with the economy of operating at near full capacity. (ii)An increase in the money supply during a period of high unemployment and excess industrial capacity. According to a normal business...If you want to get a full essay, social club it on our website: OrderEssay.net

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