Chapter 3 - The Goods Market

Question 1

Aggregate Demand for Goods and services

Answer 1

Z=C+I+G+X-IM (open economy)

Z=C+I+G (closed economy)

Question 2

Disposable income

Answer 2

Y(D)=Y-T

Question 3

endogenous variables

Answer 3

variables depend on other variables in the model (in chapter 3: T and G)

Question 4

exogenous variables

Answer 4

variables not explained within the model but are instead taken as given

Question 5

What could determine the level of I (bar)?

Answer 5

a) market expectations

b) sentiments about the future

Question 6

Steps to characterize the equilibrium graphically

Answer 6

1) Plot production as a function of income (because Production=Income, their relation is the 45° line
2) plot demand as a function of income:
Z=(c(0)+I(bar)+G-c(1)T)+c(1)Y
3) in equilibrium: production=demand

Question 7

aggregate demand of goods and services

Answer 7

ZZ curve

Question 8

comparative statics

Answer 8

before and after

Question 9

dynamics

Answer 9

how do we get from before to after?

Question 10

comparative statics (in the context of the rounds of spending)

Answer 10

the multiplier depends on the propensity to consume, which can be estimated using econometrics

Question 11

dynamics

Answer 11

how long the adjustment takes depends on how and when firms revise their production schedule