1. Assume there are 2 states New York (NY) and Minnesota (MN). NY with a Marginal propensity to consume (MPC) of 90% and MN with a Marginal Propensity to save (MPS) of 30%. If both states have the same minimum level (or autonomous) consumption) of 2,500.

a) Demonstrate and explain the income expenditure model for Minnesota and New York on separate graphs with disposable income ranging from 0 to $10,000 in $2,000 increments.

b) Compare the minimum income levels where savings begins for NY and MN.

c) How does the difference in MPC affect the economies for each state in the steady state?

d) How is this relevant to the economic issue of today about wealth inequality, specifically, If two individuals have 2 different MPC? Demonstrate and explain.

Hint Formula from Module C= a + MPC * Yd where Yd is disposable income.

Aggregate Demand and Aggregate Supply

Method

1) Starting Position will be given

2) Shock Demand or Supply

3) Positive or Negative Shift of Demand or Supply

4) Output gap is it recessionary or inflationary

5) Demonstrate and explain effects of initial shock on GDP and Price level

6) In the long run, without policy Demonstrate and explain the market response and why.

what will happen to GDP and Price Level?

1. Assume the economy is in a recession with below average price level. If consumers think the economy will get worse and they decrease spending what will happen in the short and long run.

2. If the economy is in an inflationary gap period with below average price level, what happens in the short and long run if the government increases regulation on the energy sector.

3. If the economy is in a period of stagflation, what happens if the government increases taxes in the long run and short run?