Decompose the following components of the Aggregate Expenditures identity: C+I+G, assignment help

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Economics

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Directions: Please answer questions in order, as neatly as possible.


1) Decompose the following components of the Aggregate Expenditures identity: C+I+G (much like we did in class).


2) What was Keynes' response--re the "Classicals"--with regard to:

a. Say's Law
b. the neutrality of money
c. the self-correction of markets
d. laissez-faire policies



3) What is the "Paradox of Thrift"?


4) Assume a marginal propensity to consume (mpc) of 0.75.

a. Find the necessary change in government expenditures (G) to increase real GDP by $100 billion.
b. Find the necessary change in (net) taxes (T) to increase real GDP by $100 billion.
c. Using an AS/AD diagram, show the economy's responses to question 4) a., first assuming fixed output prices, and second assuming variable output prices. Explain your graphs.


5) What is the "rationale" behind the (simple) expenditures multiplier--that is, how does it work?

6) What is fiscal policy? What type of (discretionary) fiscal policy would the government use in the face of a recession? Or demand-pull inflation? What are the limitations of fiscal policy?

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Explanation & Answer

Attached.

Running Head: AGGREGATE EXPENDITURES

1

Aggregate Expenditures

Institution Affiliated

Date

AGGREGATE EXPENDITURES

1) Decompose the following components of the Aggregate Expenditures identity:
C+I+G



C = Household Consumption



I =Investment



G = Government spending

2. What was Keynes' response--re the "Classicals"--with regard to:
a. Say's Law
It states that the production of the goods normally creates its own demand. Say argued that it was
irrational tin hoarding money for the reason that ‘he is most anxious to sell it immediately, lest its value
should diminish in his hands.

b. the neutrality of money
Neutrality of money is defined as an economic theory that normally changes in the supply of the
money do not primarily impact the actual variables of an economy, like the rate of the
emplo...


Anonymous
Awesome! Perfect study aid.

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