Alter the interactive graph in order to witness how a leftward shift of the IS curve affects the output gap and unexpected inflation. Use the information to forecast economic outcomes. a. Which of the following could explain the shift witnessed in the IS-MP framework and result in lower unexpected inflation? Decreased business confidence recently revealed in a recent business confidence index estimate. Recent legislation that reduced taxes. Recent legislation that reduced government spending on infrastructure. An increase in financial market risk, leading to a negative output gap. Decreased consumer wealth stemming from depressed asset prices.
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- Economics Explain what tendency does consumption smoothing refer to and why is it assumed in an intertemporal model?VI. Here we consider the paradox of saving one last time in the context of the AS-AD model. Suppose the economy begins with output equal to its natural level. Then there is a decrease in consumer confidence, as households attempt to increase their saving, for a given level of disposable income. a. In AS-AD and IS-LM diagrams, show the effects of the decline in consumer confidence in the short run and the medium run. Explain why curves shift in your diagrams. b. What happens to output, the interest rate, and the price level in the short run? What happens to consumption, investment, and private saving in the short run? Is it possible that the decline in consumer confidence will actually lead to a fall in private saving in the short run? c. Repeat part (b) for the medium run. Is there any paradox of saving in the medium run?From a spending model perspective, explain the causes of a recession
- Which of the following sets of variable changes will all cause the IS Curve to shift to the right? A. A decrease in autonomous consumption, a decrease in government spending and an increase in financial friction. B. An increase in autonomous consumption, an increase in government spending and a decrease in financial friction. OC. An increase in autonomous consumption, a decrease in government spending and an increase in financial friction. D. A decrease in autonomous consumption, an increase in government spending and an increase in financial friction.Now suppose I (inventories) decreases by $80 billion as a result of a macroeconomic shock. Modify your macroeconomic model to reflect this change ceteris paribus and answer the following questions (questions 21 - 25). - At GDP of 7400 1. Inventories are in surplus by 80 2. Inventories are in shortage by 80 3. Equilibrium is achieved by the macroeconomy according to the Keynesians 4. Inventories are in surplus by 160 - At GDP of 9000 1. Inventories are in surplus by 80 2. Inventories are in shortage by 320 3. Equilibrium is achieved by the macroeconomy according to both the Keynesian and Neoclassical economists 4. Inventories are in surplus by 160 - At GDP of 8200 1. Inventories are in surplus by 80 2. Inventories are in shortage by 320 3. Equilibrium is achieved by the macroeconomy according to both the Keynesian and Neoclassical economists 4. Inventories are in shortage by 4000 - At GDP of 8200 1. Inventories are in surplus by 80 2. Inventories are in shortage by 320 3.…Explain what tendency does consumption smoothing refer to and why is it assumed in an intertemporal model?
- How do consumption and investment spending affect aggregate expenditures and output over the business cycle? Which is more responsible for volatility - consumption or investment spending or both? Explain your choice. How do government actions affect consumption and investment?The accompanying graph represents the Keynesian cross for a country, where the planned aggregate spending line (Planned AE) is graphed against a 45° line. Suppose that there is an autonomous decrease in aggregate spending of $40 billion in this country. a. Show this change on the graph (you can drag and shift the whole line or either of the endpoints) and answer the following two questions. b. What is the initial unplanned inventory investment? If the number is negative, be sure to include a negative sign. billion dollars c. After firms adjust their production, what is the total change in real GDP? If the number is negative, be sure to include a negative sign. following two questions. vay and answer the b. What is the initial unplanned inventory investment? If the number is negative, be sure to include a negative sign. billion dollars c. After firms adjust their production, what is the total change in real GDP? If the number is negative, be sure to include a negative sign. billion…Determine whether each of the following, other factors held constant, would, in the short run, lead to an increase, a decrease, or no change in the level of real GDP demanded: a. A decrease in government purchases b. An increase in net taxes c. A reduction in transfer payments d. A decrease in the marginal propensity to consume.
- The total expenditure in Macroland begins with these initial levels (in trillions of dollars): autonomous consumption=1, Investment = 2; Net Exports = 0, T=2, and MPC = 0.75. Assume that equilibrium has been achieved. Suddenly there is an external shock and as a result investment goes down to 1. What is the change in GDP? Use the base model to answer this question. Equilibrium GDP goes down by 1 Equilibrium GDP goes up by 1 Equilibrium GDP goes up by 4 Equilibrium GDP goes down by 4From the Intertemporal Choice Model, many theories (non-Keynesian theories of Consumption) came into being. Using graphical and mathematical expressions, compare and contrast the following theories on consumption behaviours:i. Franco Modigliani: Life-Cycle Hypothesisii. Milton Friedman: Permanent-Income Hypothesisiii. Robert Hall: Random Walk HypothesisDifferentiate the macroeconomic effects that explain the causes of the differences of government spending in aggregate demand. Give a wider explanation.