Suppose the economy is experiencing a recession. If the Federal Reserve enacts expansionary monetary policy, interest rates will likely Multiple Choice rise causing investment to increase. fall causing investment to increase. fall causing investment to decrease. rise causing investment to decrease
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Suppose the economy is experiencing a recession. If the Federal Reserve enacts expansionary
Multiple Choice
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rise causing investment to increase.
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fall causing investment to increase.
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fall causing investment to decrease.
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rise causing investment to decrease.
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- The greater is the marginal propensity to consume, the smaller is the marginal propensity to save. 1) True 2) False A rise in the price level decreases the real value of financial assets with fixed money values and, as a result, decreases spending by the holders of these assets. 1) True 2) FalseIf firms are less optimistic that future profits will rise and remain strong for the next few years, then: Select one: a. investment spending will fall. b. investment spending will rise. c. investment spending will remain unaffected. d. investment spending will rise at first, then fall.When long-term interest rates rise, consumption expenditure and investment _______ and aggregate demand _______. A. decrease the same day; decreases a year later B. decrease a year later; decreases a year later C. increase a year later; increases a year later D. decrease about two years later; decreases about two years later
- Q11 Assume that investment does NOT depend on the interest rate. A reduction in the money supply will cause which of the following for this economy? Select one: a. no change in output. b. no change in the interest rate. c. a reduction in investment. d. an increase in investment.Consider a scenario of a closed economy in the short run where price level is fixed. Assume that both taxes and money supply increase in a way that keep output constant in equilibrium (suppose that the marginal propensity to consume is less than one). Which of the following may result from the policy change? a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.When long-term interest rates rise, consumption expenditure and investment _______ and aggregate demand _______. A. decrease the same day; decreases a year later B. decrease a year later; decreases a year later C. increase a year later; increases a year later D. decrease about two years later; decreases about two years later thanks !!! z
- When real interest rates fall, the opportunity cost of current spending ________ and the consumption function shifts ________. A falls; upward B rises; upward C falls; downward D rises; downwardAn increase in households’ desired money holding causes an increase in interest rates. How does this affect investment spending and aggregate demand?The real-balances effect refers to the effect that a change in interest rates has on the real value of wealth. True or False True False
- In a small closed economy, its aggregate demand and output are given as the equations below, Y = C + I + G; national output or GDP. C = 100 + 0.5(Y-T); consumption, marginal propensity to consume MPC = 0.5. I = 150 – 10*r; investment is a negative function of real interest rate (r as %). (M/P)d = Y – 20*r; real money demand which is adjusted by price level (inflation). G = 200; as government spending. T = 200; as tax. M = 2,400; as money supply. P = 4; the price level. (1) With the equations above, try to derive the IS curve. Tip: recall IS curve represent the relation between national output (Y) and real interest rate (r) in goods market. To derive IS curve, you need to put all components of Y together and find its connection with r. (2) Use the same equations, now try to derive the LM curve. Tip: recall LM curve represent the relation between national output (Y) and real interest rate (r) in money market. So to derive LM curve, you need to consider money supply and demand.…For each of the following events, explain the shortrun and long-run effects on output and the price level, assuming policymakers take no action ( Remember SRAS can also shift!!) The stock market declines sharply, reducing consumers’ wealth. (7.5) A technological improvement raises productivity. (7.5)Changes in interest rates, ceteris paribus, cause a shift in A) the investment demand curve and the aggregate demand curve. B) neither the investment demand curve nor the aggregate demand curve. C) the investment demand curve, but not the aggregate demand curve. D) the aggregate demand curve, but not the investment demand curve.
