Suppose
𝑎
¯
𝑐
=
0.75
,
𝑎
¯
𝑖
=
0.18
,
𝑎
¯
𝑔
=
0.18
,
𝑎
¯
𝑒
𝑥
=
0.13
, and
𝑎
¯
𝑖
𝑚
=
0.17
. Aggregate demand is
𝑎
¯
= ______.

Question

Suppose 
𝑎
¯
𝑐
=
0.75
,
𝑎
¯
𝑖
=
0.18
,
𝑎
¯
𝑔
=
0.18
,
𝑎
¯
𝑒
𝑥
=
0.13
, and 
𝑎
¯
𝑖
𝑚
=
0.17
. Aggregate demand is  
𝑎
¯
 = ______.

BlackTom AI · Accepted Answer

We start by identifying the standard components often used in a simple aggregate demand framework, where AD = C + I + G + X − M.

Option values given are:
- a_bar_c = 0.75 (consumption)
- a_bar_i = 0.18 (investment)
- a_bar_g = 0.18 (government spending)
- a_bar_ex = 0.13 (exports)
- a_bar_im = 0.17 (imports)

Step 1: Sum the domestic demand components (C + I + G + X): 0.75 + 0.18 + 0.18 + 0.13 = 1.24.

Step 2: Subtract imports to get the aggregate demand level (AD): AD = 1.24 − 0.17 = 1.07.

Step 3: Interpret the result in the common macro setup where the economy’s potential or baseline aggregate demand is normalized to 1.00. The question asks for a_bar, which, in this framing, could represent the deviation of aggregate demand from the baseline: a_bar = AD − 1.00 = 1.07 − 1.00 = 0.07.

Thus, the computed a_bar is 0.07 under the assumption that the baseline (or potential) aggregate demand level is normalized to 1.00.

If a reader questions the need for subtracting 1.00, note that in many exercises the baseline GDP is set to 1.00 for simple percentage-like measurements of excess or shortfall, so a_bar reflects how far AD is above the baseline in decimal form.

In summary, the steps leading to a_bar = 0.07 are: combine C, I, G, X to get 1.24, subtract M to get 1.07, and then express the deviation from the unit baseline as 0.07.

FA25 ECON 302 002 Final Exam (Chapters 7-9, 11-13, 19-20): Sample Questions

Suppose 𝑎 ¯ 𝑐 = 0.75 , 𝑎 ¯ 𝑖 = 0.18 , 𝑎 ¯ 𝑔 = 0.18 , 𝑎 ¯ 𝑒 𝑥 = 0.13 , and 𝑎 ¯ 𝑖 𝑚 = 0.17 . Aggregate demand is 𝑎 ¯ = ______.

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