4. Use the Keynesian cross diagram, and illustrate how the AE would shift in each scenario. Indicate whether the economy would end up at a higher or lower equilibrium output. a. Households experience a decline in wealth as the value of housing drops when the housing bubble bursts. b. The nation's leaders tell consumers it is their patriotic duty to save the economy by consuming more, and consumers do so c. The same national leaders pass policies favoring the wealthy, which leads to a more unequal distribution of income. Chapter 9 - Aggregate Demand and Economic Fluctuations 6 5. a. Assume a simple, closed economy with no government. The marginal propensity to consume (mpc) = 0.8. Assume that firms expect the future sales and profits to fall, and they suddenly cut back (unintended) investment spending (//) by 50 million. By how much will output eventually fall? b. Now assume the same as above, except that now the mpc = 0.9. How much will output fall when unintended investment spending drops by 50 million?17. Why do demand curves generally slope downward? 18. Explain the difference between a change in quantity demanded and a change in demand. 19. A U.S. car manufacturer has produced a lot of SUVs, but now is having difficulty selling them at the price it had intended to sell them for. The cars are sitting at the warehouse unsold. Is this market in equilibrium? Explain. 20. A new movie is released after having been heavily promoted to teenagers. On the first night, the tickets sell out and there are still teenagers waiting outside theaters, desperate to see the movie and unable to get a ticket. Is this market in equilibrium? Explain. 21. What is the mathematical definition of price elasticity of demand (supply)? 22. Provide an example of a market in which prices may adjust very slowly; and an example of a market in which prices may adjust very quickly. Chapter 4 -Supply and Demand Problems S, Price of Cars Quantity of Cars 1. For the following questions, refer to the graph shown above. a. Label the equilibrium point as En. the equilibrium quantity as Q1, and the equilibrium price as P1. b. Show how the supply curve will change if car manufacturers achieve a technological breakthrough that allows them to produce cars more cheaply. c. If the price stayed at Pi, would a surplus or a shortage result from the technological breakthrough described in part (b)? Answer in words, and show on the graph. d. Assuming market forces work quickly, show the new equilibrium price to which the market will adjust. Label this point as E2. Label the new equilibrium quantity as Q2 and the new equilibrium price as P2. e. In words, summarize the information that you have shown in your adjustments to the graph in parts (a) through (d).Part 2: True or false questions with justification (30 points) Evaluate carefully each of the following statements; decide if they are True or False and provide a precise justification for your answer. Your mark will depend on the quality of your response. 1. An increase in the marginal tax rate increases the investment multiplier, while an increase in the marginal propensity to consume lowers it. 2. If consumers become thrifty, in the sense that they reduce their autonomous consumption, for example, this will end up lowering their saving. 3. The IS curve is downward sloping because an increase in taxes lowers the level of output. 4. The demand for money does not depend on the interest rate because only bonds earn interest.For the following reaction, list all organic produds. Be sure to include any rearrangement that might take place. Also be sure to show wedges and dash es where required and necessary. This question is only asking you to list products, it is not asking you to write out the mechanism. Be sure to answer the question completely, take a picture of your answer, and upload the answer to this question portal using the browse my computer button. 0 N02 H 50 HO 2. 4 5. Consider an open economy with flexible prices and flexible exchange rate. If the govern- ment reduces its spending, this will have a positive impact on net exports and could have a negative impact on the output of its trade partners. (5 points) 6. Consider a closed economy with fixed prices. An increase in government spending de- creases investment expenditures. (5 points)5. Consider an open economy with flexible prices and flexible exchange rate. If the govern- ment reduces its spending, this will have a positive impact on net exports and could have a negative impact on the output of its trade partners. (5 points) 6. Consider a closed economy with fixed prices. An increase in government spending de- creases investment expenditures. (5 points)