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Assuming that the aggregate price level is constant, the interest rate is fixed, and there are no taxes and no foreign trade, how will the aggregate demand curve shift and in what direction if the following events occur?

a] An autonomous increase in consumer spending of $25 billion; the marginal propensity to consume is 2/3

b] Firms reduce investment spending by $40 billion; the marginal propensity to consume is 0.8

c] The government increases its purchases of military equipment by $60 billion; the marginal propensity to consume is 0.6

2007-10-31 16:46:42 · 1 answers · asked by Meezy 3 in Social Science Economics

1 answers

Depending on the definition of corelation between x and y axis. If Y stands for consumption price and X is quantity, with constant price on the market, the aggregate demand is a linear line or a convex curve, in reverse the hyperbol, starting from constant price point, and slope = .75wi + .8wj + .6wm
wi,,j,m are weight distribution on consumptions.

2007-10-31 17:21:40 · answer #1 · answered by toodd 4 · 0 0

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