1. Recall that the text defines aggregate demand and supply as follows:

"Firms face four sources of demand: households (personal consumption), other firms (investment), government agencies (government purchases), and foreign markets (net exports). Aggregate demand is the relationship between the total quantity of goods and services demanded (from all the four sources of demand) and the price level, all other determinants of spending unchanged."

Aggregate supply is, "the level of output produced by firms to the price level in the long run."

A) Find a recent news article (within the last six months) which addresses one or more of the sources of demand. Based on the article, describe how the sources are shifting the demand. Is it increasing or decreasing? What is causing it? Will supply be sufficient to meet that demand level?

2. Answer the following questions about marginal propensity to consume and the multiplier. First provide the correct equation and then show your work to arrive at the answer:

A) What is the marginal propensity to consume when consumption changes from 7 to 6 and disposable income changes from 5 to 3?

B) If disposable personal income is 10 and consumptionis12, what is personal savings? What does this mean?

C) What is the multiplier when the change inequilibriumlevel of real GDP in the aggregate expenditures model is 9, and change in autonomous aggregate expenditures is 3?

D) What is the multiplier when the marginal propensity to save is 1/3?

E) What would happen to the marginal propensity to save when a tax cut was enacted causing the multiplier to change to 5?

The following criteria will be used to grade the papers:

• Correct equations are used and shown
• Explanations are correct
• Calculations are correct.
• Answers are correct