alex ma\nmicroeconomics\nactivity 3\ndetermine whether each change listed in table 3 - 1.1 will cause an…

alex ma\nmicroeconomics\nactivity 3\ndetermine whether each change listed in table 3 - 1.1 will cause an increase, decrease, or no change in ad.\n2. in column 1, list which component of ad is affected: c, i, g, or xn.\n3. in column 2, draw an up arrow if the change will cause an increase in ad, a down arrow if it will cause a decrease in ad, and write nc if it will not change ad.\n4. in column 3, write the number of the ad curve after the change (always start with ad). (using graph below)\ntable 3 - 1.1\nchanges in aggregate demand\n| change | 1. component of ad | 2. direction of ad change | 3. resulting ad curve |\n|--|--|--|--|\n| (a) consumers respond to high levels of debt by reducing their purchases of durable goods. | c | ↓ | ad₂ |\n| (b) reduced business confidence leads to a reduction in investment spending. | i | nc | ad₂ |\n| (c) government spending increases with no increase in taxes. | g | ↑ | ad |\n| (d) survey shows consumer confidence jumps. | c | ↑ | ad₁ |\n| (e) stock market collapses; investors lose billions. | i | ↓ | ad |\n| (f) productivity rises for fourth straight year. | | nc | ad |\n| (g) new tariffs on imported goods lead to a trade war that reduces exports by more than it reduces imports. | xn | | |\npl\nad₂ ad ad₁\ny (real gdp)

alex ma\nmicroeconomics\nactivity 3\ndetermine whether each change listed in table 3 - 1.1 will cause an increase, decrease, or no change in ad.\n2. in column 1, list which component of ad is affected: c, i, g, or xn.\n3. in column 2, draw an up arrow if the change will cause an increase in ad, a down arrow if it will cause a decrease in ad, and write nc if it will not change ad.\n4. in column 3, write the number of the ad curve after the change (always start with ad). (using graph below)\ntable 3 - 1.1\nchanges in aggregate demand\n| change | 1. component of ad | 2. direction of ad change | 3. resulting ad curve |\n|--|--|--|--|\n| (a) consumers respond to high levels of debt by reducing their purchases of durable goods. | c | ↓ | ad₂ |\n| (b) reduced business confidence leads to a reduction in investment spending. | i | nc | ad₂ |\n| (c) government spending increases with no increase in taxes. | g | ↑ | ad |\n| (d) survey shows consumer confidence jumps. | c | ↑ | ad₁ |\n| (e) stock market collapses; investors lose billions. | i | ↓ | ad |\n| (f) productivity rises for fourth straight year. | | nc | ad |\n| (g) new tariffs on imported goods lead to a trade war that reduces exports by more than it reduces imports. | xn | | |\npl\nad₂ ad ad₁\ny (real gdp)

Answer

(A) Consumers reduce durable - goods purchases due to high debt. This affects consumption (C). Less consumption means a decrease in AD, so a down - arrow and new curve $AD_2$.

Step2: Analyze business confidence change

(B) Reduced business confidence leads to less investment (I). But the answer in the table for direction of AD change is incorrect. A reduction in investment spending should cause a decrease in AD (down - arrow), not NC. The new curve should be $AD_2$.

Step3: Analyze government spending change

(C) Government spending (G) increases with no tax increase. This causes an increase in AD (up - arrow), and the curve remains AD (assuming initial is the base AD).

Step4: Analyze consumer confidence change

(D) Higher consumer confidence (C) leads to more consumption, increasing AD (up - arrow), new curve $AD_1$.

Step5: Analyze stock - market collapse

(E) Stock - market collapse affects investment (I). Investors losing money leads to less investment, decreasing AD (down - arrow), curve remains AD.

Step6: Analyze productivity change

(F) Productivity rise doesn't directly affect AD components in the short - run, so no change in AD (NC), curve remains AD.

Step7: Analyze trade war impact

(G) New tariffs reduce exports more than imports, affecting net exports ($X_N$). A decrease in net exports leads to a decrease in AD (down - arrow), new curve $AD_2$.

Answer:

(A) 1. C; 2. $\downarrow$; 3. $AD_2$ (B) 1. I; 2. $\downarrow$; 3. $AD_2$ (C) 1. G; 2. $\uparrow$; 3. AD (D) 1. C; 2. $\uparrow$; 3. $AD_1$ (E) 1. I; 2. $\downarrow$; 3. AD (F) 1. None (or Others as productivity is not a direct AD component); 2. NC; 3. AD (G) 1. $X_N$; 2. $\downarrow$; 3. $AD_2$