2. What is the potential asymmetry in the effect of interest rates on Investment? 

3. Describe whether the following changes cause AD to shift to the right, to the left or to not shift all.

(Draw a diagram for each part.)

1. The price level increases,

b. Purchases of new homes decrease.

c. Imports decrease and Exports increase.

d. The stock market increases in value.

  e. Peace breaks out! Government purchases of military equipment decrease.

4. Although economists believe that recessions tend to begin as slumps in investment spending, they also believe that consumer spending eventually slumps during a recession. Explain why.

5 a. Suppose that the MPC= .6 and there are no taxes. What is the oversimplified multiplier? 

b. If Investment spending falls by 500, how far will the AD curve shift? In which direction?

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2 The potential asymmetry in the effect of interest rates on investment arises from the fact that investment decisions are often influenced more by ex... View the full answer