How do production, income, and demand affect one another year to year?
Demand changes affect production when prices and wages are fixed; production changes income, which changes demand.
What does consumption (C) include?
Goods and services purchased by consumers.
What is total goods demand in a closed economy?
What determines output in the goods-demand model?
Demand determines output.
What condition defines goods-market equilibrium in a closed economy?
.
What formula gives equilibrium output with linear consumption?
.
What is private saving in terms of disposable income, consumption, output, and taxes?
What expression defines public saving?
What can individual attempts to save more do to aggregate demand and output?
They can reduce both, potentially lowering total saving.
What determines equilibrium saving when investment, taxes, and government spending stay unchanged?
Investment and the public budget balance.
Answer 10 questions on The Short Run: Goods Market.
1. When prices and wages are fixed, what sequence describes how a change in demand can affect economic activity from year to year?
2. A firm purchases new equipment to expand its productive capacity. Which GDP expenditure component does this purchase represent?
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