Using the IS–LM diagram, show the effects on output and the interest rate of a increase in government spending. Can you tell what happens to investment? Why?
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Using the IS–LM diagram, show the effects on output and the interest rate of a increase in government spending. Can you tell what happens to investment? Why?
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- How does a change in the interest rate affect aggregate investment? What if firms prefer to pay for investment spending out of retained earnings? Does a change in the interest rate still affect aggregate investment?How does a change in the interest rate affect aggregate investment ? What if firms prefer to pay for investment spending out of retained earnings ? Does a change in the interest rate still affect aggregate investment Does the amount of government spending in an econ omy respond directly to changes in aggregate income , wealth , or interest rates ? Does it respond indirectly to changes in these variables ?Why is the relationship between output and the real interest rate called the IS curve?
- Explain in detail what effect a reduction in government spending will have on: (1) the LM curve; and (2) the IS curve.In late 2009 and early 2010, real disposable income DI began growing at a slow pace, and during the same period, the value of corporate stocks held by households rose somewhat. How do you think this affected aggregate real consumption?How is it possible for investment spending to increase even in a period in which the real interest rate rises?
- According to the IS–LM model, what happens to the interest rate, income, consumption, and investment under the following circumstances?a. The central bank increases the money supply.b. The government increases government purchases.c. The government increases taxes.Which of the following decreases in response to the interest-rate effect from an increase in the price level? a. both investment and consumption b. consumption but not investment c. investment but not consumption d. neither investment nor consumptionWhy will a reduction in the real interest rate increase investment spending, other things equal? Why is investment spending unstable?
- What are the basic determinants of investment? Explain the relationship between the real interest rate and the level of investment. Why is investment spending unstable? How is it possible for investment spending to increase even in a period in which the real interest rate rises?Based on The Aggregate Expenditure Model, what affects the level of consumption (five factors); and what affects the level of investment (four factors)?Why does the LM curve slope upward
