The Aggregate Demand curve represents the collective behaviour of consumers in relation to various stimuli. Associate the following characteristics of the AD curve to it's explanation.

Associate each variable to a role in the AD-AS Model

Match the statements with the concepts

As you can tell from the history of the model, Keynesian macroeconomics are very much focussed on demand insufficiency, and government intervention. This was a big deal in the Great Depression. However, the model does not look at supply constraints, and inflation, which means it only looks at the demand side of the equation.

In your view, how important - given recent events such as the COVID-19 pandemic - are supply-side issues to macroeconomics?

Consider a closed economy, where MPC is 0.8, which gives a government multiplier of 1 / 0.2 = 5

What happens to the efficiency of government intervention, if the MPC changes?

Consider a closed economy where MPC = 0.9, and AE = Ye₁ (equilibrium production level). However, potential output is larger, at 9,000 G$

Ye₁ = 8,000 G$

Yp = 9,000 G$

Calculate the Output Gap, and the necessary government stimulus, so that  Ye₂ = Yp.

In a Keynesian model, the level of production may be at equilibrium, which means it is stable, but that does not mean there is enough production. Factors of production may be left idle, such as labour. This creates unemployment rates in the double-digits.

Match the following situations with the appropriate interpretation.

Consider an economy with no trade (closed economy), where the marginal propensity to consume (MPC) is 0.85.

Autonomous expenditures are

C = 500 G$

I  = 200 G$

G = 150 G$

(G$ = billions of dollars)

What would be the equilibrium level of income (Y), where Y=AE ?

In a Keynesian model, Aggregate Expenditure may be associated to a certain level of Aggregate Income (Y). However, a mismatch between AE and Y will not be sustained. Associate the following positions of AE with Y, to a feedback mechanism.

In a Keynesian model, an equilibrium level of production may be stable, and associated to high ___________________________.