Question 1

Assuming the level of investment is $16 billion and independent of the level of total output, complete the following table and determine the equilibrium levels of output and employment in this private closed economy.What are the sizes of the MPC and MPS?

Be sure to answer both parts of the questionfill in the data and compute the MPC and MPS.

Possible levels of employment (millions) Real domestic output (GDP=DI) (billions) Consumption(billions) Saving(billions)

40 $240 $244 $ _____

45 $260 $260 $ _____

50 $280 $276 $ _____

55 $300 $292 $ _____

60 $320 $308 $ _____

65 $340 $324 $ _____

70 $360 $340 $ _____

75 $380 $356 $ _____

80 $400 $372 $ _____

Question 2

Why is saving called aleakage?Why is planned investment called aninjection?Why must saving equal planned investment at equilibrium GDP in the private closed economy?Are unplanned changes in inventories rising, falling, or constant at equilibrium GDP?

Question 3

Why is the long-run aggregate supply curve vertical?Explain the shape of the short-run aggregate supply curve.Why is the short-run curve relatively flat to the left of the full-employment output and relatively steep to the right?

Question 4

Distinguish between "real-balances effect" and "wealth effect," as the terms are used in this chapter.How does each relate to the aggregate demand curve?