Unit 3: National Income and Price Determination

The economy of Artfield is currently operating above full employment. Assume the government takes no fiscal policy action.

The economy of Kensington is currently in a recession with an output gap of $600 billion. The marginal propensity to consume (MPC) is 0.75. Nominal wages are sticky downward in the short run.

The economy of Harborville is currently in long-run equilibrium. Assume that nominal wages are sticky in the short run. Harborville's major trading partner, Eastdale, experiences a significant increase in real income.

The economy of Brenton is in a recession with a recessionary gap of $400 billion. The marginal propensity to consume (MPC) is 0.8.

The economy of Pineridge is initially at full employment. A severe drought destroys a significant portion of the agricultural output, sharply increasing the cost of food and raw materials.