determine whether each change listed in table 3 - 1.1 will cause an increase, decrease, or no change in…

determine 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 changes 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. | | | |\n| (b) reduced business confidence leads to a reduction in investment spending. | | | |\n| (c) government spending increases with no increase in taxes. | | | |\n| (d) survey shows consumer confidence jumps. | | | |\n| (e) stock market collapses; investors lose billions. | | | |\n| (f) productivity rises for fourth straight year. | | | |\n| (g) new tariffs on imported goods lead to a trade war that reduces exports by more than it reduces imports. | | | |\npl ad₂ ad ad₁\ny (real gdp)

determine 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 changes 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. | | | |\n| (b) reduced business confidence leads to a reduction in investment spending. | | | |\n| (c) government spending increases with no increase in taxes. | | | |\n| (d) survey shows consumer confidence jumps. | | | |\n| (e) stock market collapses; investors lose billions. | | | |\n| (f) productivity rises for fourth straight year. | | | |\n| (g) new tariffs on imported goods lead to a trade war that reduces exports by more than it reduces imports. | | | |\npl ad₂ ad ad₁\ny (real gdp)

Answer

Brief Explanations:

  • (A): Consumers reducing durable - goods purchases affects consumption (C). Less spending means a decrease in AD, shifting the curve to AD1.
  • (B): Reduced business investment affects investment (I). Lower investment leads to a decrease in AD, shifting the curve to AD1.
  • (C): Increased government spending (G) with no tax increase boosts AD, shifting the curve to AD2.
  • (D): Higher consumer confidence increases consumption (C), leading to an increase in AD and a shift to AD2.
  • (E): Stock - market collapse reduces wealth, decreasing investment (I) and consumption (C), shifting AD to AD1.
  • (F): Rising productivity doesn't directly affect AD in the short - run, so no change (NC) and the curve remains AD.
  • (G): Reduced exports more than imports decrease net exports (Xn), leading to a decrease in AD and a shift to AD1.

Answer:

Change 1. Component of AD 2. Direction of AD change 3. Resulting AD curve
(A) C Down arrow AD1
(B) I Down arrow AD1
(C) G Up arrow AD2
(D) C Up arrow AD2
(E) I, C Down arrow AD1
(F) None NC AD
(G) Xn Down arrow AD1