Q: Why is Investment Demand Unstable
A: Investment demand is important in determining the level of income and employment in the economy. It…
Q: Suppose that an increase in consumer confidence raises consumers’ expectations about their future…
A: Demand refers the total amount of goods and services that are willing and able to buy at the…
Q: What is the relationship between interest rate, aggregate income, and price level?
A: The rate that is being charged from the borrower by the lender for use of its assets or the amount…
Q: What is the effect of an increase in expected future income on the consumption function?
A: Increase in expected future income have certain effect on current consumption.
Q: How would an increase in the interest rate affect consumption and investment function?
A: Consumption signifies the amount of currencies spent on buying current goods and services by the…
Q: Investment is purely financial and has no impact on the level of employment in an economy. a.…
A: The economies around the world tend to focus on their growth, and development through various…
Q: According to Keynes, interest is a payment for
A: To find : Interest is a payment for
Q: an IS-LM diagram.
A: The IS-LM model stands for "investment-savings" (IS) and "liquidity preference-money supply" (LM)…
Q: Consider a closed economy. A decrease in the price of goods that firms produce and an increase in…
A: Aggregate demand (AD) is a downward sloping curve indicating an inverse relationship between…
Q: Assume an economy where the consumption function is defined as C = CC + CY and the investment…
A: Given: Consumption function: C = CC + CY l = ir
Q: 35. According to Keynes, interest is a payment for A. O Consumer's preference B. Producer's…
A: To find : Interest is payment for.
Q: The table below depicts the level of gross investment at various interest rates in the economy. Year…
A: A : At the interest rate of 5% , the gross investment will be $ 75000 in year 1
Q: How is it possible for investment spending to increase even in a period in which the real interest…
A: Investment spending is one of the component of Gross Domestic Product which is referred to as buying…
Q: How does a change in the interest rate affect aggregate investment ? What if firms prefer to pay for…
A: Hello. Since you have posted multiple questions and not specified which question needs to be solved,…
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: The equation of the IS curve is given by: y^t= A- a.r^t .What is the stabilising interest rate for…
A: GIVEN y^t= A− a.r^t y^t= 0.75, y^e= 0.26, A= 0.69 a= 0.27.
Q: How does the change in real interest rates affect output and price level? Graph an example.
A: Interest rates have an effect on output and price level.
Q: Draw a well labeled diagram of the LM Curve. Determine the equilibrium level of income and…
A: The LM curve represents the money market equilibrium. It represents the various combination of the…
Q: Consider an economy described by the following equations: Y = C + I + G Y = 5,000 G = 1,000 T =…
A: In equilibrium, Y = C + I + G
Q: Determine whether each of the following statements is true or false, and explain why it is true or…
A: The IS curve is downwards sloping to the right which indicates to the fact that the rate of…
Q: The LM curve determines: neither income and the interest rate. the interest rate. both income and…
A: In the IS-LM model, LM stands for liquidity preference money supply which is Keynesian macroeconomic…
Q: Why do we have upward sloping LM curve? What does it shows? Derive the LM curve. Explain your answer…
A: The IS-LM model is used to represent the equilibrium interest rate and income level in the economy.…
Q: How does the life cycle and the permanent income hypothesis resolve the seemingly contradictory…
A:
Q: In late 2009 and early 2010, real disposable income DI began growing at a slow pace, and during the…
A: In an economy, changes in disposable income will affect the savings and consumption decision of the…
Q: Which theory is called as the neo classical theory of the rate of interest
A: According to the given question A neo classical theory of the rate of interest is basically an…
Q: what is the relationship between investment and saving in the cyclical flow of the economy
A: The model of the cyclical flow of the economy or the circular flow model shows the flow of money…
Q: The interest rate effect states that a lower price level reduces the amount of money people wish to…
A: The interest rate effect is the change in the spending and borrowings after the change in interest…
Q: By using the IS-LM model, what happens in the short run to the interest rate and output if the…
A: In the IS-LM model, the IS curve reflects the goods market equilibrium. The IS curve is downward…
Q: Economists in Pakland, a closed economy, have collected the following information about the economy…
A: Equilibrium level in the economy is the level where income is equal to aggregate expenditure.…
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: What is the LM curve and why does is it positively slope? Explain the factors which can shift the LM…
A: LM curve:- The LM curve depicts the income and rate of interest pairs wherein the quantity of money…
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: The following equations describe an economy. a. Identify each of the variables and briefly explain…
A: IS and LM curve analysis was first developed by Hicks, in order to explain the general equilibrium…
Q: a. Identify each of the variables and briefly explain the meaning of each one. b. From the above…
A: IS curve shows equilibrium in the market of goods and services. LM shows equilibrium in the asset…
Q: How does a change in the interest rate affect aggregate investment? What if firms prefer to pay for…
A: The three factors which affect the investment spending of aggregate investment are interest rate,…
Q: It is possible that the interest rate might affect consumption spending. An increase in the interest…
A: IS stands for “investment” and “saving,” and the IS curve represents what’s going on in the market…
Q: What is the impact of an increase in taxes on the interest rate, income, consumption and investment?
A: The consumption depends on the income of a person. If the income of a person increases then the…
Why is the relationship between output and the real interest rate called the IS curve?
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- 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?How is it possible for investment spending to increase even in a period in which the real interest rate rises?What is the diference between a real interest rate and a nominal interest rate?What is the intuition behind the Fisher equation?
- Determine whether each of the following statements is true or false, and explain why it is true or false. Use the graph to clarify your answer. [2 x 3 marks] If the investment does not depend on the interest rate, IS curve is vertical. If there is an increase in Government expenditure IS curve will shift to the left.If the GDP increases what is expected to happen. to the interest rate? Please answer uniquely in 500 words.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 consumption
- What does this mean? "When drawn against the real interest rate, output supply increases if the labor supply is increasing in the interest rate."Suppose the real interest rate is higher than the equilibrium interest rate. We can predict that a. The real interest rate will decrease to encourage investment and discourage saving b. The real interest rate will increase to discourage investment and encourage saving c. The real interest rate will decrease to discourage investment and encourage saving d. The real interest rate will increase to encourage investment and discourage savingHow 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?
- Suppose the parameters of the IS curve are a_bar = 0, b_bar = 1/2, r_bar = 2%, and R = 3%. What’s the value of real interest rate when the economy is outputting at its long-run level.Why will a reduction in the real interest rate increase investment spending, other things equal? Why is investment spending unstable?How would an increase in the interest rate affect consumption and investment function?