Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Chapter 11, Problem 1AP
To determine
To Evaluate: Effects on different economic variable under different condition using IS-LM model.
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Keynesian economics predicts that if government policy makers deem current equilibrium real Gross Domestic Product (GDP) to be "too low," then an appropriate policy action would be to
do nothing, because the economy is self-adjusting.
raise government spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product (GDP) with little or no inflationary consequences.
increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product (GDP) with little or no inflationary consequences.
reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures.
According to the Keynesian ideas on Aggregate Demand, a macroeconomist would most likely expect business expenditure to increase when ...
Group of answer choices
a. Interest rates are low and expected returns are low
b. Interest rates are high and expected returns are high
c. Interest rates are low and expected returns are high
d. Interest rates are high and expected returns are low
For each of the following scenarios, assume the economy experiences an exogenous decrease in investment demand. For each case, illustrate the IS-LM-FX diagram and state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: Y, i, E, C, I, TB. Here, we assume the policy makers’ objective is to keep output fixed at its initial value
Chapter 11 Solutions
Macroeconomics (9th Edition)
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