Lecture 6-100926

Question 1

What makes up a large portion of US Demand

Answer 1

Consumption Demand and Spending (about 70% of total GDP). There are more than 100 million households in America

Question 2

What is investment or business investment

Answer 2

Spending in capital goods and services for a firm’s operations, and to adjust their inventory levels.

Question 3

Describe equilibrium in a macro environment

Answer 3

ALL interested parties are satisfied ie all consumers, businesses, government entities and foreign buyers are satisfied with the price and supply levels, i.e., aggregate demand and aggregate supply intersect.

Question 4

T or F-It is possible to reach aggregate equilibrium?

Answer 4

F, never in equilibrium because all markets can not be in equilibrium.

Question 5

What does the right side of the quantity demanded function represent?

Answer 5

Right side of equation – PREDICTOR or INDEPENDENT variables, their changes will affect / impact the quantity demanded (ceteris paribus, we can analyze the individual, independent variables)

Question 6

What is effective demand?

Answer 6

Effective Demand – what people can afford and are willing to buy, as opposed to what they would like to buy

Question 7

What are the four components of aggregate demand/total spending?

Answer 7

GDP = C + I + G +Net X

Question 8

What does Macro equilibrium mean and what are the implications?

Answer 8

What does it mean if equilibrium?
1. All interested parties (investors, businesses) are satisfied with what’s going on, given the price.
2. Income and output are considered over time. Employment levels (not just in a particular industry, but aggregate)
3. There is repetitive economic activity until something shifts the demand or supply curve.
What if overall system (all markets) is not in equilibrium? This is only theoretical construct