Author Question: How do changes in expectations, fiscal policy and monetary policy, and the world economy change ... (Read 126 times)

bobthebuilder · **on:** Jun 29, 2018

How do changes in expectations, fiscal policy and monetary policy, and the world economy change aggregate demand and the aggregate demand curve?

What will be an ideal response?

Question 2

Refer to Figure 5-12. One way to obtain the economically efficient amount of college education is for governments to subsidize college education.

What is the size of the per-student Pigovian subsidy that the government must provide to internalize the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example, through low-interest student loans.)
A) P2-P1 B) P1 C) P2-P0 D) P0-P1

pallen55 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Aggregate demand increases and the AD curve shifts rightward if: expected future income, expected future inflation, or expected future profits increase; government expenditure increases or taxes are cut; the quantity of money increases and the interest rate is cut; the exchange rate falls; or foreigners' income increases. The reverse changes decrease aggregate demand and shift the AD curve leftward.

Answer to Question 2

A