1- Linear and non-linear equations

Question 1

Demand function

Answer 1

P= aQ +b

Question 2

Why is demand function crude?

Answer 2

It assumes price is the only determinant of demand.

Question 3

What side of the equation is tax on?

Answer 3

On supply side

Question 4

Effect of a change in an exogenous variable on the demand curve?

Answer 4

Deman shifts

Question 5

Effect of a change in an endogenous variable on the demand curve?

Answer 5

Movement along the fixed demand curve

Question 6

Components of aggregate expenditure

Answer 6

Consumer expenditure
Investment expenditure
Gov expenditure
Export expenditure - import expenditure

Question 7

Equilibrium E=Y curve

Answer 7

45 degree angle

Question 8

Intercept of aggregate expenditure curve

Answer 8

constants + exogenous variables

Question 9

Slope of aggregate expenditure curve

Answer 9

‘marginal propensity to spend’ out of current income

Question 10

Consumption function

Answer 10

a + bY
a- autonomous consumption
b- mpc
Y- national income

Question 11

Y equation in equilibirum

Answer 11

Y=C+I
Assume there is no leakages
I=S

Question 12

Savings function

Answer 12

Y= C+S
Rearrange consumption function

Question 13

Multiplier equation

Answer 13

1/ (1-b)

Question 14

If there is taxation what must be present?

Answer 14

Government spending

Question 15

MPC + MPS = ?

Answer 15

1

Question 16

E=Y meaning?

Answer 16

aggregate expenditure = aggregate supply

Question 17

Where is the equilibrium on the graph?

Answer 17

Where the 45-degree line meets the E line

Question 18

PED equation

Answer 18

% change in QD/ % change in P=
(Change in Q/Change in P) x (Price/Quantity)

Question 19

Why is PED always negative

Answer 19

Due to law of demand

Question 20

PED value if inelastic?

Answer 20

E<1

Question 21

PED value if elastic?

Answer 21

E>1

Question 22

What is arc elasticity?

Answer 22

Works out the average elasticity of 2 points

Question 23

Arc elasticity equation

Answer 23

Look in book

Question 24

Switch of demand function to work out income elasticity

Answer 24

D= a0 + a1P1 + a2Y
a1 <0 and a2>0

Question 25

Income elasticity equation

Answer 25

change in QD/ change in Y x (Y/D)
Same can be done with non-linear models but with logs