Suppose Planned Investment Drops by 200

question 19

Essay

Suppose planned investment drops by 200.
(a) First, graphically illustrate the effects of this reduction in planned investment using the AE - Y graph. Explain what effect it will have on the economy.
(b) Now suppose policymakers wish to prevent this drop in I from having any effect on output. How much would government spending have to increase in order to prevent any change in Y? Explain.
(c) Rather than use a change in spending, suppose policymakers wish to use a change in taxes to prevent Y from changing. Explain what must happen to taxes to achieve this.
(d) Briefly compare and explain any differences in the size of the change in G and change in T in parts (b) and (c).

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Definitions:

Emotional Vulnerability

A state or condition in which individuals are more susceptible to being emotionally hurt or impacted by external factors.

Marxist Theory

A social, political, and economic philosophy named after Karl Marx, focusing on class struggle, the effects of capitalism, and the means of achieving socialism.

Exploitative Capitalist System

An economic system criticized for exploiting workers and prioritizing profits over the well-being of individuals.

Deviance

Involves actions or behaviors that violate societal norms and expectations, leading to social judgment.