following secondary effects which dissipate the strength or effectiveness of expansionary Keynesian macroeconomic policy, which one is associated with rising interest rates because of greater government borrowing to finance a budget deficit?
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a) Crowding out effect
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b) Inflation
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c) transactions
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d) sovereign debt crisis
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e) All the above
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- From a Keynesian point of view, which is more likely to cause a recession: aggregate demand or aggregate supply, and why?QUESTION 6 06. Which of the following statements about Keynesian policy are TRUE? a) Keynesian policy is most effective in the flat Keynesian (or Depression) range of the Short-Rum Aggregate Supply (AS) curve, where increases in Aggregate Demand are not likely to cause products price inflation. b) Keynesian policy is totally ineffective in the vertical Classical (past-full employment) range of the Short-Run Aggregate Supply (AS) curve, where an increase in Aggregate Demand will be completely dissipated by products price inflation. c) In the Intermediate range of the Short-Run Aggregate Supply (AS) curve, the effectiveness of Keynesian policy is partially dissipated by products price inflation. d) The Short-Run Aggregate Supply (AS) curve may will be vertical when the economy is trying to produce beyond full employment. But a vertical AS curve can also result from resource suppliers acting on inflationary expectations. This too will make Keynesian…5 "Both Expansionary Fiscal Policy and Expansionary Monetary policy increase income in the IS-LM model" Discuss with graph and logic. In which case private sector will play a bigger role and why?
- QUESTION 6 06. Which of the following statements about Keynesian policy are TRUE? Multiple answers a) Keynesian policy is most effective in the flat Keynesian (or Depression) range of the Short-Rum Aggregate Supply (AS) curve, where increases in Aggregate Demand are not likely to cause products price inflation. b) Keynesian policy is totally ineffective in the vertical Classical (past-full employment) range of the Short-Run Aggregate Supply (AS) curve, where an increase in Aggregate Demand will be completely dissipated by products price inflation. c) In the Intermediate range of the Short-Run Aggregate Supply (AS) curve, the effectiveness of Keynesian policy is partially dissipated by products price inflation. d) The Short-Run Aggregate Supply (AS) curve may will be vertical when the economy is trying to produce beyond full employment. But a vertical AS curve can also result from resource suppliers acting on inflationary expectations. This too will…29. Assuming Aggregate Demand and Aggregate Supply are initially at ADo and ASo respectively, and AD1 and AS1 represent changes, which of the above graphs depict the work of Keynesian macroeconomic policy? a) Figures A & B b) Figures A & C c) Figures C & D d) Figures B & DA Keynesian economy is described by the following equations. Consumption Cd = 250 + 0.5(Y - T) - 250r Investment Id = 250 - 250r Government purchases G = 300 Government taxes T = 300 Real money demand L = 0.5Y - 500r + πe Money supply M = 3000 Full-employment output Y = 1250 Expected inflation πe = 0 (HINT a: The expected rate of inflation is assumed to equal zero so that money demand depends directly on the real interest rate, which equals the nominal interest rate. Domestic Savings, Sd =Y - C - G. In equilibrium set domestic savings equal to domestic investment, so Sd = Id) Calculate the values of the real interest rate (r), consumption (Cd), and investment (Id) for the economy in general equilibrium.
- Directions: Read the following excerpts. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the ADAS graph as a result of the policy action described in each. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from Public Law 111-5 of the 111th Congress: Signed into law by President Obama February 17, 2009 “Making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. TITLE XII—Transportation, Housing and Urban Development, and Related Agencies …projects eligible for funding provided under this heading shall include, but not be limited to, highway or bridge projects eligible under title 23, United…Mf4. 18. INTERACTION BETWEEN FISCAL POLICY AND MONETARY POLICY (a) Derive the IS curve and the LM curve graphically (from the Keynesian cross and the theory of liquidity preference, respectively) and denote the equilibrium interest rate and level of income. (b) Analyze the effect of an increase in government spending graphically. What is the crowd effect? (c) Under the various responses of monetary policy to the fiscal expansion, when is the stimulating effect is maximized and why?QUESTION 5 05. The "crowding-out secondary effect expansionary macroeconomic policy a) For fiscal policy it is about government borrowing to finance the government budget deficit, associated with expansionary fiscal policy. This increased government borrowing tends to increase the market rate of interest, which dampens investment spending. b) For monetary policy it is about the expansion of the economy increasing the demand for money to service the increased volume of transactions. This tends to increase the market rate of interest, which dampens investment spending. c) Decreases the autonomous spending multiplier and thus the impact of expansionary policy. d) All of the above.
- 1. Which of the following is a major area of disagreement between activists and nonactivists? Group of answer choices -Activists believe discretionary macroeconomic policy can be applied in a manner that will enhance economic stability. Nonactivists disagree. -Activists believe monetary policy is more potent than fiscal policy. Nonactivists disagree. -Activists believe changes in monetary and fiscal policy exert their effects instantaneously. Nonactivists think they work only with a substantial lag. -Nonactivists think macroeconomic policy is sometimes motivated by the pursuit of political gain. Activists disagree. Which of the following is correct?5 Consider the above situation (in question 1) when the economy has been hit by a negative (temporary) supply shock and as a result the economy is currently at a short-run equilibrium. What can the Federal Reserve do to achieve output stability? Using the AS-AD model and in words illustrate how the described action of the Federal Reserve impacts the economy in terms of inflation and output.Directions: Read the following excerpts. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the ADAS graph as a result of the policy action described in each. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from Public Law 110-85 of the 110th Congress: Signed into law by President George W. Bush February 13, 2008 “To provide economic stimulus through recovery rebates to individuals, incentives for business investment, and an increase in conforming and FHA loan limits. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. Title I – Recovery Rebates and Incentives for Business Investment … Sec. 101. 2008 recovery rebates for individuals. Sec. 102. Temporary increase in limitations on expensing of certain depreciable business assets Sec. 103. Special allowance for certain property…