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Macroeconomic Analysis and its Impact on Aggregate Variables

A macroeconomic analysis focusing on the relationship between aggregate variables such as inflation, unemployment, and GDP.

Emma Thompson
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Macroeconomic Analysis and its Impact on Aggregate VariablesEACH QUESTION SHOULD BE AT LEAST 75 WORDS.1.Suppose MPC is 0.8 initially. Households then change their behavior so that the MPCfalls to 0.75. What happens to aggregateexpenditures? Why?When the MPC falls, it means that households are spending less of any additional incomethey receive. Aggregate expenditures (AE) are calculated as the sum of consumption (C),investment (I), government spending (G), and net exports (NX). The MPC is a key factorin determining consumption (C), which directly affects aggregate expenditures.Why does AE change?A decrease in the MPC means that the multiplier effect (the process through which initialchanges in spending lead to larger total changes in output and income) becomes smaller.The spending multiplier is given by the formula:2.How is an aggregate demand curve derived? What would cause the aggregate demandcurve to shift to the right?•Derivation of the Aggregate DemandCurve:The aggregate demand (AD)curve shows the total quantity of goods and services demanded in an economy atdifferent price levels. It is derived from the total spending in the economy, whichconsists of:AD=C+I+G+NXAD = C + I + G + NXAD=C+I+G+NXWhere:oCCC is consumptionoIII is investmentoGGG is government spending

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Economics

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