Changes in the level of economic activity are related to changes in the spending of households, businesses, government units, and buyers in the foreign sector.

a. How do personal consumption expenditures, investment spending, government purchases of goods and services, and net exports compare in terms of relative size and stability?

b. How are personal consumption expenditures affected by taxes, transfer payments, saving, and borrowing?

c. How is investment spending affected by changes in the interest rate?

d. Why are government expenditures on goods and services a direct injection and government expenditures on transfer payments not a direct injection into the spending stream?

e. What effects do transactions in the foreign sector have on domestic levels of output, employment, and income?

f. Under what circumstances would an increase in total spending lead primarily to an increase in output, and when would it lead primarily to an increase in prices?