Seminar Questions and Answers

Seminar Questions and Answers

  1. Explain how the following factors lead to a shift of the aggregate demand:
  2. Autonomous monetary policy.
  3. Government purchases.
  1. Autonomous net exports.
  2. Autonomous consumption expenditure.
  3. Autonomous investment.
  • Financial frictions.
  • Answers on next slide:

Answer for question one:

Answer for question one:

  • An increase in monetary policy will lead to a decline in short-term interest rates, and ultimately stimulate investment demand and consumer demand, and shift the aggregate demand curve.
  • Government procurement and aggregate demand are changes in the same direction. The increase in government purchases will directly increase the total demand.
  • Tax cuts increase the real wages of the family, thereby increasing aggregate demand, which shifts the aggregate demand curve to the right. When tax increases, it reduces the real wages of the household, which will cause the aggregate demand curve to shift to the left.
  • Net exports equal exports minus imports. With the increase in net export demand, total demand will also increase, and the rapid growth of net exports will cause an imbalance of supply and demand, thereby affecting total demand.

Answer for question one:

  • If consumers spend their income on consumer spending, aggregate demand will expand. If residents use their income to save, aggregate demand will decrease. And the impact of consumption on aggregate demand is more important
  • Bank loans, bonds, stocks, etc. are all called investments. The Keynesian multiplier principle points out. If the benefits of investment increase the income of consumers, the total demand will also increase.
  • Financial friction includes uneven distribution of resources, unequal information, and distortions in investment value. Consumers have expectations about future income, and the occurrence of financial friction will lower consumers’ expectations, thereby reducing consumption and also affecting aggregate demand.

Seminar questions

  1. Explain how the following factors lead to a shift of the short-run aggregate supply curve:
  2. Expected inflation. II. Inflation shock.
  • Persistent output gap.

Answer on next slide:

Answer for question two:

Seminar questions

III. Explain the meaning of the self-correcting mechanism.

Answer:

  • Regardless of where output is initially, it returns eventually to the natural rate.
  • Slow:
  • Wages are inflexible, particularly downward
  • Need for active government policy
  • Rapid:
  • Wages and prices are flexible
  • Less need for government intervention