1. Aggregate Expenditures Model Practice Remember: Economic growth (recession) is a result of; 1.Increases (decreases) in Consumption Spending. 2.Increases (decreases) in Investment. 3.Increases (decreases) in Net Exports. 4.Increases (decreases) in Government Expenditures and/or Taxes.

2. Aggregate spending GDP AE AE 1 Y FE Y1Y1 Remember: Economic growth (recession) is a result of; 1.Increases (decreases) in Consumption Spending. 2.Increases (decreases) in Investment. 3.Increases (decreases) in Net Exports. 4.Increases (decreases) in Government Expenditures and/or Taxes.

3. Aggregate Expenditures Model Practice Remember: Economic growth (recession) is a result of; 1.Increases (decreases) in Consumption Spending. Changes in Consumption are caused by; 1.∆ in Wealth. 2.∆ in Taxes. 3.∆ in Debt. 4.∆ in Market Expectations.

4. Aggregate Expenditures Model Practice Remember: Economic growth (recession) is a result of; 2. Increases (decreases) in Investment. Changes in Investment are caused by; 1.∆ in Overhead costs. 2.∆ in Taxes. 3.∆ in Technological Change. 4.∆ in Market Expectations. 5.∆ in Stock of Capital Goods

5. Aggregate Expenditures Model Practice Remember: Economic growth (recession) is a result of; 3. Increases (decreases) in Net Exports. Changes in Net Exports are caused by; 1.∆ Prosperity Abroad. 2.∆ in Tariffs. 3.∆ in Exchange Rates $ ↑ X n ↓$ ↓ X n ↑

6. Aggregate Expenditures Model Practice Remember: Economic growth (recession) is a result of; 4. Increases (decreases) in Government Expenditures and/or Taxes. Changes in Government Expenditures are caused by;

7. Draw an Aggregate Expenditures graph and summarize the information represented in the following situations. Aggregate spending GDP Explanation: AE AE 1 Y FE Y1Y1

8. In 1929 the stock market crashed. How would we show this on the AE Model, and explain the reason for the change. Aggregate spending GDP Explanation: Decrease in Consumption caused by ∆ in Wealth and/or Decrease in Investment caused by a ∆ in overhead costs or market expectations. AE AE 1 Y FE

9. In 1929 the stock market crashed, leading to a large decline in capital investment. How would we show this on the PPC graph, and explain the reason for the change. Capital Goods Consumer Goods Explanation: The production level shifted inward because of a decease in capital (financial/investment) resources. A A1A1

10. In 1929 businesses were forced to close leading to 1/3 rd of the labor force losing their jobs. Aggregate spending GDP Explanation: Decrease in Consumption caused by ∆ in Wealth, Debt and/or expectations. AE AE 1 FE Y FE

11. In 1929 businesses were forced to close leading to 1/3 rd of the labor force losing their jobs. Capital Goods Consumer Goods Explanation: The production level shifted to a point inside the line due to the underemployment of our labor resources. A U1U1

12. To try and solve the problem FDR implemented “The New Deal” to help people get jobs through government spending. Aggregate spending GDP Explanation: Increase in Government Spending. AE AE 1 FE Y FE

13. To try and solve the problem FDR implemented “The New Deal” to help people get jobs through government spending. Capital Goods Consumer Goods Explanation: The production level shifted from a point inside the line due to the effort in moving toward the Full Employment of our labor resources. A U1U1

14. In 1942 the United States entered WWII, which led to the government increasing the amount of military production. Aggregate spending GDP Explanation: Increase in Government Spending. AE AE 1 FE AE 2 Explanation: Decrease in Consumption and Investment due to crowding out. Y FE

15. In 1942 the United States entered WWII, which led to the government increasing the amount of military production. How would we show this on the PPC graph, and explain the reason for the change. Capital Goods Consumer Goods Explanation: Production moved toward Capital goods because of the increase of production for war materials which would lead to future growth at the end of the war. A A1A1 B

16. After WWII the US worked to stabilize the dollar so that the exchange value was low. Aggregate spending GDP AE AE 1 FE Explanation: Increase in Net Exports caused by ∆ in exchange rates. Y FE

17. After WWII the US worked to stabilize the dollar so that the exchange value was low. Capital Goods Consumer Goods Explanation: The production level shifted inward because of a decease resources.(investment) Increased import prices reduces quantity of resources due to increased overhead costs. A A1A1

18. To try and solve the energy problem the government passes an energy policy that allows for increased off-shore and the opening of the ANWR for drilling. Aggregate spending GDP AE AE 1 FE Explanation: Increase in Consumption caused by ∆ in Wealth and/or Increase in Investment caused by a ∆ in overhead costs or market expectations. Y FE

19. To try and solve the energy problem the government passes an energy policy that allows for increased off-shore and the opening of the ANWR for drilling. How would we show this on the PPC graph, and explain the reason for the change. Capital Goods Consumer Goods Explanation: The production level shifted outward because of an increase in the quantity of oil (land) resources. A A1A1

20. The scientists working with the new Large Hadron Collider (LHC) discover a way of harnessing a safe fusion power source that will produce 1000 times the energy that current nuclear fission reactors are able to produce.. Aggregate spending GDP AE AE 1 FE Explanation: Increase in Investment caused by a ∆ in overhead costs, technology or market expectations. Y FE

21. The scientists working with the new Large Hadron Collider (LHC) discover a way of harnessing a safe fusion power source that will produce 1000 times the energy that current nuclear fission reactors are able to produce. How would we show this on the PPC graph, and explain the reason for the change. Capital Goods Consumer Goods Explanation: The production level shifted outward because of an increase in the quality and quantity of energy resources. (Land or Capital) A A1A1

22. To help solve the recession a society is experiencing, the government conducts an expansionary fiscal policy by increasing spending, expanding subsidies, and reducing taxes. Aggregate spending GDP AE AE 1 Explanation: ∆ in Government Spending moves AE to FE of Y Y FE YUYU

23. To help solve the recession a society is experiences the government conducts an expansionary fiscal policy by increasing spending, expanding subsidies, and reducing taxes. Capital Goods Consumer Goods Explanation: The production level shifted from a point inside the line due to the effort in moving toward the Full Employment of our labor resources. A U1U1

24. To help solve the recession a society is experiences the government conducts an expansionary fiscal policy by increasing spending, expanding subsidies, and reducing taxes. GDP TIME Trend Line GDP R Explanation: Increases ∆ in G causes a movement from recession (contraction) in the business cycle to expansion. GDP E