Using the Keynesian-cross diagram and the investment function diagram, derive the IS Curve by illustrating what happens when real interest rates fall.
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Using the Keynesian-cross diagram and the investment function diagram, derive the IS Curve by illustrating what happens when real interest rates fall. (See page 319 of the textbook for an example.)
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- Using the Keynesian-cross diagram, the investment function diagram, and the IS Curve, illustrate what happens when consumer confidence falls (thus reducing autonomous consumptions. (See page 319 of the textbook.)What is the relationship between the marginal and average propensity to consume in the standard Keynesian consumption function and permanent income hypothesis? What are the assumptions required to in order to derive the accelerator investment function? Why does investment take place according to this model?Consider a standard Keynesian model but with two types of consumers, Type A who have low marginal propensities to consume and Type B who have high marginal propensities to consume. An economy with relatively more Type A consumers is more vulnerable to a negative shock to investment demand.Answer true, false, or uncertain. Please briefly explain your answer.
- Explain the Keynesian, saving-consumption relationship, and interpret consumption and saving functions on a single graph.Carefully explain the major differences between the Keynes and Fisher models of consumptionThe 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) False
- What is the relationship between the marginal and average propensity to consume in the standard Keynesian consumption function and permanent income hypothesis?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 the interest rate would shift the consumption function upward. True or False
- Please write down whether the following statements are true or false, and explain your answer very briefly A)If actual investment is greater than planned investment, inventories increase more than planned. B)The marginal propensity to consume is the change in consumption expenditure divided by the percentage change in income. C)Gross domestic product (GDP) is the value of all goods and services produced in an economy over a particular time period. D)Monetary policy refers to taxation and spending policies implemented by government. E)In a simple Keynesian model (with lump-sum taxes and a MPC of 0.8), a tax cut of 20 billion TL will have less of an impact on GDP than an increase in government spending of 10 billion TL. D)When you take 1000 TL from your savings account and deposit it in your checking account, M2 decreases. F)An open market purchase of government securities (such as Treasury Bills) by the Central Bank will decrease the money supply and raise the interest rate.…How would the level of aggregate demand be affected by a rise in the interest rate in the Keynesian theory? Which components would be affected most strongly?On the following graph, use the blue curve to plot investment as a function of disposable income: According to the table, investment is: a. Autonomous with respect to disposable income b. Responsive to changes in interest rates c. Responsive to changes in business expectations d. Correlated with consumption A terrorist attack that makes business forecasts more pessimistic would cause the investment function you drew previously to a. Slope upward b. Shift up c. Shift down d. Slope downward
