If investment spending is not very sensitive to the interest rate a. the LM curve should be relatively flat. b. the LM curve should be relatively steep. c. the IS curve should be relatively flat. d. the IS curve should be relatively steep. e. neither the IS nor the LM curve will be affected. Explain..
Q: In the IS-LM model, what is the effect of an increase in government purchases? Draw an IS-LM diagram…
A: IS curve depicts the locus of all the points where the goods market is in equilibrium . IS relation…
Q: Any help will be appreciated a. Identify each of the variables and briefly explain the meaning of…
A: Equilibrium is reached at the intersection of IS and LM curves. At the intersection both goods…
Q: D: the magnitude of the change in investment would depend on the slopes of the real money demand…
A: The relationship that exists between how much investment takes place and the rates of interest is…
Q: Carefully explain the major differences between the Keynes’ and Fisher’s models of consumption.
A: Keynes’ consumption function is a formula recipe that portrays the useful functional relation…
Q: Explain it correctly not copy paste Q)In the Real Business Cycle model, what is the effective…
A: Effective investment refers to the net addition to the capital stock of economy which is measured by…
Q: an IS-LM diagram.
A: The IS-LM model stands for "investment-savings" (IS) and "liquidity preference-money supply" (LM)…
Q: Chapter 12: Aggregate Demand II: Applying the IS-LM Model Question: If taxes increase, but the…
A: Since, you have posted multiple questions, we will solve the fistrst for you. In case xes affect…
Q: erest rate b) A decrease in investm
A: The IS curve depicts all level sets of output and interest rates at which total investment in turn…
Q: Consider an economy with the following features: Consumption, C = 130 + 0.5Yd Income tax, T =…
A:
Q: Assume the following IS-LM model: Expenditure sector: Money sector: C = 100 + (4/5)YD I = 300 - 20i…
A: Given C = 100+(4/5) YD G = 120 I-= 300-20i TA= (1/4) Y NX = -20 M = 700 P = 2 Md = (1/3) Y+200-10i
Q: In the IS-LM model, what is the effect of an increase in government purchases? Draw an IS-LM diagram…
A: LM curve shows the positive relationship between interest rate and output. It means as the interest…
Q: 1. The IS curve is based on the goods market: Y C, + mpc (Y - T) + la-2r +G. Assume that the mpe 80.…
A: IS curve denotes locus of those points at which goods market is in equilibrium . It is drawn in (r ,…
Q: Suppose that the components of planned spending in an economy are C=500 +0.8(Y-T), I=1500, G=2000,…
A: C = 500 + 0.8(Y-T) I = 1500 X = 0 T = 0.25Y
Q: Consider an economy described by the following…
A: Given, Y=C+I+GC=100+0.75(Y-T)I=500-50rG=125T=100 It has also given that at its natural rate, GDP…
Q: (a) Explain Keynes' three conjectures about the consumption function. Describe the evidence that is…
A: Keynes theory: It refers to the spending from one purchaser becoming pay for a business. Then, at…
Q: I. Suppose the Fed creates a new electronic dollar. This new system allows everyone to make and…
A: In the IS-LM model, IS curve shows equilibrium in the goods market and the LM curve shows…
Q: a. Explain the meaning of each of these equations. b. What is the marginal propensity to consume in…
A: Gross domestic product (GDP) is the standard measure of the value added created through the…
Q: QUESTION 34 Consider a simple macro model with a constant price level and demand-determined output.…
A: The marginal propensity to save (MPS) is an economic metric that measures how savings change when…
Q: Discuss the topic in the Image based on the consumption theory choices that you can choose and…
A: Investors put their money into a project for three reasons: to make a profit, to reduce their tax…
Q: Qu If the Keynesian consumption function is C = 10 + 0.8 Yd then, when disposable income is A£1000,…
A: Data presented in the question above is as follows:- Keynesian consumption function is:- C = 10 +…
Q: Consider the following economy: cd = 230 + 0.60(Y - T)- 460 d = 240 - 480/r L = 0.4Y- 540/ Y = 1,000…
A: * SOLUTION :- Given that ,
Q: Assume that people will spend $0.60 of every extra dollar they earn. Further assume that the real…
A: According to the question, "people spend $0.60 of every extra dollar they earn" this means marginal…
Q: Consider the simplest macro model with demand-determined output. The equations are: C = 100 + 0.8…
A: Aggregate expenditure: AE = C + I + G + X -IM Where AE is aggregate expenditure C is consumption I…
Q: Using the IS–LM diagram, show the effects on output and the interest rate of a increase in…
A: The change in the government spending affects the IS-LM model thereby affecting the output and…
Q: Can you tell me what the implication of the "Euler equation of consumption " do and what the meaning…
A: Microeconomics refers to the branch of economics that studies the behavior of individuals and firms…
Q: Which of the following will NOT cause a shift of the AS curve? Changes in non-labour O Changes in…
A: Aggregate supply is the total supply of goods and services in an economy while aggregate demand is…
Q: a) Given the following simple Keynesian Model: Y = C + I + G + X-M, where Consumption schedule is…
A: The simple Keynesian model (or SKM in short) explains how the national income is determined with the…
Q: cording to the IS–LM model, what happens to the interest rate, income, consumption, and investment…
A: If government purchases increase, then the government-purchases multiplier tells us the IS curve…
Q: Assume that the marginal propensity to consume is 0.75 and that taxes are exogenous. Imagine that…
A: MPC= Marginal propensity to consume= change in consumption / change in income If there is change in…
Q: Consider the economy of XYZ, has the following indicators in the table below: Ct = 0.7Yt ̅Gt = 0.2Yt…
A: Disclaimer :- Since you asked multipart question we are solving the first 3 subparts as per…
Q: Determine the IS curve graphically given the goods market equilibrium below. 32- S, (Y = 400) S2(Y =…
A: From the graph of saving and investment, we have At Income level Y =400, interest rate =24% At…
Q: Suppose that a recession overseas causes foreigners to buy fewer goods from our country . Using IS -…
A: The IS full form is Investment and Savings. The LM full form is Liquidity and Money. On the vertical…
Q: "Suppose an economy with output at the natural level and there is an increase in consumer…
A: Meaning of Disposable Income: Here, the term disposable income reflects the income level saved by…
Q: CThe following equations describe an economy C = 100 + 0.75 Y, I= 50 – 25i where C' is aggregate…
A:
Q: 2.2(a)How Permanent income hypothesis and life cycle hypothesis explain the differences between the…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Explain in detail what effect a reduction in government spending will have on: (1) the LM curve; and…
A: The IS curve is a downward sloping curve which reflects a negative relationship between the interest…
Q: VI. Here we consider the paradox of saving one last time in the context of the AS-AD model. Suppose…
A: The aggregate demand–aggregate supply model, also known as the AD-AS model, is a macroeconomic model…
Q: Suppose that Dell Corporation has 20,000 computersin its warehouses on December 31, 2019, ready tobe…
A: Inventory investment is defined as a change in the stock of the goods because some goods are…
Q: Consider the Aggregate Expenditure Model. When the real interest rate falls, the AE Line will shift…
A: Equilibrium occurs when aggregate expenditure curve intersects 45 degree line. It is comprised of…
Q: 2. Find the IS-LM equilibrium values for aggregate income (Y) and the interest rate (r). Show these…
A: IS stands for investment saving curve. LM stands for liquidity of money curve.
Q: 1. For each of the following scenarios explain, with the aid of an IS-LM diagram, what happens to…
A: The IS-LM model, which stands for "investment-savings" (IS) and "liquidity preference-money supply"…
Q: Assume that investment depends on the interest rate and production. A reduction in government…
A: Government expenditure plays an important role in determining the interest rate and investment in…
Q: Suppose individuals now believe that there will be an increase in the future expected interest rate.…
A: An interest rate future is a financial derivative that allows exposure to changes in interest rates.…
Q: Expenditure sector: C = 100 + (4/5)YD G = 120 YD = Y - TA I = 300 - 20i , TA = (1/4)Y, NX =…
A:
If investment spending is not very sensitive to the interest rate
a. the LM curve should be relatively flat.
b. the LM curve should be relatively steep.
c. the IS curve should be relatively flat.
d. the IS curve should be relatively steep.
e. neither the IS nor the LM curve will be affected.
Explain..
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- 19. In the short-run macro model, if the MPC equals 0.9 and investment spending rises by P200 billion, then equilibrium GDP will rise by a. P20 billion b. P180 billion c. P90 billion d. P1,000 billion e. P2,000 billion. In the IS-LM model, what is the effect of an increase in government purchases? Draw an IS-LM diagram to illustrate. In this question, it is not necessary to include the FE line. a) What is the effect on output and the real interest rate? b) What is the effect on investment spending? c) If the LM curve had been horizontal, explain how your answers to a and b would have been different.In the year of 2019, the U.S. economy produced a total output of $20.75 trillion. During the same year, the U.S. federal government spent $7.88 trillion. The desired consumption and desired investment in the U.S. for the year is described by: Cd=15-150r, Id=10-200r Where Cd is the desired consumption in trillions of $, Id is the desired investment in trillions of $, and r is the real interest rate in decimal form. if the average real interest rate during the year 2019, is 4.1%, how much is the desired national saving, Sd, in trillions of $? round answer to at least 2 decimal places.
- Suppose that in Macroland the consumption and the investment have a negative relationship withthe real interest rate and positive relationship with Y. The Central Bank of the country targets acertain nominal interest rate and lets the money supply adjust in order to reach that interest rate.a. Draw a graph of the IS-LM model in this situation.b. Suppose that the Central Bank announces an increase of the interest rate in the future.Represent graphically the initial position of IS-LM curves. Then, show the IS-LM curves of thefuture, after the announced increase in the interest rate is implemented. (Assume that the ISis constant.).c. Suppose that agents today take into consideration the resulting income of the future whendeciding the amount of consumption and investment. Show what happens to the IS-LMcurves today after the announcement of the CB (tip: the CB is NOT increasing the nominalinterest rate today).d. The government decides to step in and avoid any deviation of Y from the initial…a) Use an appropriate diagram, to explain how the Permanent Income Theory of Consumption reconciles the results of cross-section and time series estimate of the Keynesian aggregate consumption function. (b) With the help of a diagram, explain the effect of an increase in nominal income on interest rate.Explain it correctly not copy paste Q)In the Real Business Cycle model, what is the effective investment and the equilibrium investment?
- An economy is described by the following equations: C= 2,600+ 0.8(Y-T) - 10,000r IP = 2,000-10,000r G = 1,800 NX = 0 PAE = C+1²+ GANX T = 3,000, Where the definitions of each variables are the same as our lecture notes. The real interest rate, r, expressed as a decimal, is 0.10 (that is, 10 percent). a. Find a numerical equation relating planned aggregate expenditure to output. b. Solve for short-run equilibrium output. c. Show your result graphically using the Keynesian-cross diagram. d. Now, suppose that potential output Y* equals 12,000. What real interest rate should the Fed set to bring the economy to full employment? e. Recalculate question (d) for the case in which potential output Y* equals 9,000.Suppose that the components of planned spending in an economy are C=500 +0.8(Y-T), I=1500, G=2000, X=0, T=0.25Y, find short run equilbrium output?Economists in Pakland, a closed economy, have collected the following information about the economy for a particular year: Y = Rs.10,500 C = Rs.6,000 T = Rs.1,500 G = Rs.1,700 The economists also estimate that the investment function is: I = 3,300 - 100r Where, r is the country’s real interest rate, expressed as a percentage. Calculate: Private savingBlank 1(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)Public savingBlank 2(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)National savingBlank 3(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)InvestmentBlank 4The equilibrium real interest rateBlank 5(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)If the government increases taxes to Rs.1,800, calculate private savingBlank 6((Write Only numbers in the…
- (a) Explain Keynes' three conjectures about the consumption function. Describe the evidence that is consistent with these conjectures and the evidence that is inconsistent with them. (b) Compare and contrast the Life Cycle Hypothesis with the Permanent Income Hypothesis. Which of these two hypotheses do you think deals more satisfactorily with the well known "consumption puzzle"? Explain.a) What generally happens to the major macroeconomic variables such as GDP, unemployment rate, and inflation rate during an economic recession? b) Define economic expansion using the reference terms of actual GDP and potential GDP. c) Explain how investment spending and interest rate related. What is the reason behind such a relationship? d) Find the correlation coefficient between interest rate and Real Investment. Does this (actual) value support the theoretical relationship between the variables? Explain. (e) Explain the importance of investment spending for the economy. Only typed answerDoes interest (nominal or real) impact the consumption function in any way? According to literature consumption in the IS-LM model is affected by changes in output Y and taxes T. But in this question as there is an i for the interest included in the equation does that mean (as I am given a nominal interest rate), use it in my calculations? Or is it just written there to test my knowledge?
