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:

1. What is the marginal propensity to consume when consumption changes from 7 to 6 and disposable income changes from 5 to 3?
2. If disposable personal income is 10 and consumptionis12, what is personal savings? What does this mean?
3. What is the multiplier when the change inthe equilibriumlevel of real GDP in the aggregate expenditures model is 9, and the change in autonomous aggregate expenditures is 3?
4. What is the multiplier when the marginal propensity to save is 1/3?
5. What would happen to the marginal propensity to save when a tax cut was enacted causing the multiplier to change to 5?

Question 2

Reflect on Aggregate demand and aggregate supply.

Question 3

a) Explain why a change in one component of aggregate demand will cause the aggregate demand curve to shift by multiple initial changes.

b) Give three reasons for the downward slope of the aggregate demand curve.

c) "When the price level falls, people's wealth increases. When wealth increases, the real volume of consumption increases. Therefore, a decrease in the price level will cause the aggregate demand curve to shift to the right." Do you agree? Explain.

d) Suppose nominal wages never changed. What would be the significance of such a characteristic?

e) How would an increase in the supply of labor affect the natural level of employment and potential output? How would it affect the real wage, the level of real GDP, and the price level in the short run? How would it affect the long-run aggregate supply? What kind of gaps would be created?