macroeconomics
Your Assignment 2 relates to chapters 4 (Demand, Supply, and Markets), 9 (Aggregate Expemditure and Aggregate Demand) and 10 (Aggregate Supply) respectively.. You will be answerring questions related to the concepts of economic fluctuations and aggregate demand and supply.
Your assignment is worth 6 pts, and each of the questions must have at least a half of page of writing supported by more than the textbook refererence. In addition your answers must prescribe to APA format.. You must submit a cover page, each question in a page by itself, and your references page must be also in a page by itself. And, please do not forget to reference your in-text. Lastly your assignment must be submitted via “Safeassign” in order to obtain your max points your work must be original in at least 70%.
Answer the following questions:
– Explain the effect of an increase in consumer income on the demand for a good.
– In your own words, explain the logic of the income-expenditure model. What determines the amount of real GDP demanded?
– Define the economy’s potential output. What factors help determine potential output?
Solution Preview
Concepts of Economic Fluctuations and Aggregate Demand and Supply
Consumer income vs. Demand
The income of the consumer has a significant effect on the amount of good that the consumer is likely to purchase freely; this is influenced by the nature and type of good. For the majority of products, there is a direct connection between them and the income (McEachern, 2000). This means that the income of the consumer may influence the number of goods that the consumer purchase freely. This is an indication that when the consumer income rises, the demand for these goods is likely to rise; consequently, when the income level goes down, the need for those goods goes down. The types of products are termed as standard goods.
(690 words)