The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

Question

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Answer 1

Question

Chapter 12, Problem 1QQ

To determine

The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'd' is correct.

Explanation of Solution

Under the IS-LM model, a change in the money supply and the change in the tax rates will have a great impact over the interest rate in the economy. This is because the IS-LM model explains the relationship between the interest rates and the asset market in the economy.

Option (d):

When there is a decrease in the money supply, the policy becomes a contractionary monetary policy. When the contractionary monetary policy takes place, the LM curve will shift upward, and the interest rate will increase, whereas the income level of the economy will decrease. Thus, option d is correct.

Option (a):

When there is an increase in the tax rate in the economy, the disposable income of the consumers will decline in the economy. Thus, the fiscal policy will become a contractionary policy. As a result of the contractionary policy, the IS curve will shift toward the left, and as a result, the interest as well as the income level of the economy will decline. Thus, option a is incorrect.

Option (b):

When there is a decrease in the tax rate in the economy, the disposable income of the consumers will increase in the economy. Thus, the fiscal policy will become an expansionary policy. As a result of the expansionary policy, the IS curve will shift toward the right, and as a result, the interest as well as the income level of the economy will increase. Thus, option b is incorrect.

Option (c):

When there is an increase in the money supply, the policy becomes an expansionary monetary policy. When the expansionary monetary policy takes place, the LM curve will shift downward, and the interest rate will fall, whereas the income level of the economy will increase. Thus, option c is incorrect.

Economics Concept Introduction

Tax: Tax is the unilateral payment that the people and the firms have to pay to the government for various purposes, such as the income earned, profit made, property owned, and so on.

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Students have asked these similar questions

According to the IS-LM model, what happens to the interest rate, income and consumption and investment under the circumstance that (a) the Central bank increases supply of money, and (b) the government increase government purchases?

According to the IS-LM model what happens in the short-run to rhe interest rate, income consumption and investment uder the following circumstances(Note:this is a closed economy) a. the central bank increases the miney supply. b. the government increases government purchases

Assume the following IS-LM model: expenditure sector: money sector: AD = C + I + G + NX I = 300 - 20i M = 700 C = 100 + (4/5)YD G = 120 P = 2 YD = Y - TA NX = -20 md = (1/3)Y + 200 - 10i TA = (1/4)Y How much investment (I) will be crowded out if the government increases its purchases by deltaG = 160 and nominal money supply (M) remains unchanged?

Answer 2

Question

Chapter 12, Problem 1QQ

To determine

The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'd' is correct.

Explanation of Solution

Under the IS-LM model, a change in the money supply and the change in the tax rates will have a great impact over the interest rate in the economy. This is because the IS-LM model explains the relationship between the interest rates and the asset market in the economy.

Option (d):

When there is a decrease in the money supply, the policy becomes a contractionary monetary policy. When the contractionary monetary policy takes place, the LM curve will shift upward, and the interest rate will increase, whereas the income level of the economy will decrease. Thus, option d is correct.

Option (a):

When there is an increase in the tax rate in the economy, the disposable income of the consumers will decline in the economy. Thus, the fiscal policy will become a contractionary policy. As a result of the contractionary policy, the IS curve will shift toward the left, and as a result, the interest as well as the income level of the economy will decline. Thus, option a is incorrect.

Option (b):

When there is a decrease in the tax rate in the economy, the disposable income of the consumers will increase in the economy. Thus, the fiscal policy will become an expansionary policy. As a result of the expansionary policy, the IS curve will shift toward the right, and as a result, the interest as well as the income level of the economy will increase. Thus, option b is incorrect.

Option (c):

When there is an increase in the money supply, the policy becomes an expansionary monetary policy. When the expansionary monetary policy takes place, the LM curve will shift downward, and the interest rate will fall, whereas the income level of the economy will increase. Thus, option c is incorrect.

Economics Concept Introduction

Tax: Tax is the unilateral payment that the people and the firms have to pay to the government for various purposes, such as the income earned, profit made, property owned, and so on.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 12, Problem 1QQ

To determine

The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'd' is correct.

Explanation of Solution

Under the IS-LM model, a change in the money supply and the change in the tax rates will have a great impact over the interest rate in the economy. This is because the IS-LM model explains the relationship between the interest rates and the asset market in the economy.

Option (d):

When there is a decrease in the money supply, the policy becomes a contractionary monetary policy. When the contractionary monetary policy takes place, the LM curve will shift upward, and the interest rate will increase, whereas the income level of the economy will decrease. Thus, option d is correct.

Option (a):

When there is an increase in the tax rate in the economy, the disposable income of the consumers will decline in the economy. Thus, the fiscal policy will become a contractionary policy. As a result of the contractionary policy, the IS curve will shift toward the left, and as a result, the interest as well as the income level of the economy will decline. Thus, option a is incorrect.

Option (b):

When there is a decrease in the tax rate in the economy, the disposable income of the consumers will increase in the economy. Thus, the fiscal policy will become an expansionary policy. As a result of the expansionary policy, the IS curve will shift toward the right, and as a result, the interest as well as the income level of the economy will increase. Thus, option b is incorrect.

Option (c):

When there is an increase in the money supply, the policy becomes an expansionary monetary policy. When the expansionary monetary policy takes place, the LM curve will shift downward, and the interest rate will fall, whereas the income level of the economy will increase. Thus, option c is incorrect.

Economics Concept Introduction

Tax: Tax is the unilateral payment that the people and the firms have to pay to the government for various purposes, such as the income earned, profit made, property owned, and so on.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 12, Problem 1QQ

To determine

The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'd' is correct.

Explanation of Solution

Under the IS-LM model, a change in the money supply and the change in the tax rates will have a great impact over the interest rate in the economy. This is because the IS-LM model explains the relationship between the interest rates and the asset market in the economy.

Option (d):

When there is a decrease in the money supply, the policy becomes a contractionary monetary policy. When the contractionary monetary policy takes place, the LM curve will shift upward, and the interest rate will increase, whereas the income level of the economy will decrease. Thus, option d is correct.

Option (a):

When there is an increase in the tax rate in the economy, the disposable income of the consumers will decline in the economy. Thus, the fiscal policy will become a contractionary policy. As a result of the contractionary policy, the IS curve will shift toward the left, and as a result, the interest as well as the income level of the economy will decline. Thus, option a is incorrect.

Option (b):

When there is a decrease in the tax rate in the economy, the disposable income of the consumers will increase in the economy. Thus, the fiscal policy will become an expansionary policy. As a result of the expansionary policy, the IS curve will shift toward the right, and as a result, the interest as well as the income level of the economy will increase. Thus, option b is incorrect.

Option (c):

When there is an increase in the money supply, the policy becomes an expansionary monetary policy. When the expansionary monetary policy takes place, the LM curve will shift downward, and the interest rate will fall, whereas the income level of the economy will increase. Thus, option c is incorrect.

Economics Concept Introduction

Tax: Tax is the unilateral payment that the people and the firms have to pay to the government for various purposes, such as the income earned, profit made, property owned, and so on.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 12, Problem 1QQ

To determine

The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'd' is correct.

Explanation of Solution

Under the IS-LM model, a change in the money supply and the change in the tax rates will have a great impact over the interest rate in the economy. This is because the IS-LM model explains the relationship between the interest rates and the asset market in the economy.

Option (d):

When there is a decrease in the money supply, the policy becomes a contractionary monetary policy. When the contractionary monetary policy takes place, the LM curve will shift upward, and the interest rate will increase, whereas the income level of the economy will decrease. Thus, option d is correct.

Option (a):

When there is an increase in the tax rate in the economy, the disposable income of the consumers will decline in the economy. Thus, the fiscal policy will become a contractionary policy. As a result of the contractionary policy, the IS curve will shift toward the left, and as a result, the interest as well as the income level of the economy will decline. Thus, option a is incorrect.

Option (b):

When there is a decrease in the tax rate in the economy, the disposable income of the consumers will increase in the economy. Thus, the fiscal policy will become an expansionary policy. As a result of the expansionary policy, the IS curve will shift toward the right, and as a result, the interest as well as the income level of the economy will increase. Thus, option b is incorrect.

Option (c):

When there is an increase in the money supply, the policy becomes an expansionary monetary policy. When the expansionary monetary policy takes place, the LM curve will shift downward, and the interest rate will fall, whereas the income level of the economy will increase. Thus, option c is incorrect.

Economics Concept Introduction

Tax: Tax is the unilateral payment that the people and the firms have to pay to the government for various purposes, such as the income earned, profit made, property owned, and so on.

Answer 6

Chapter 12, Problem 1QQ

To determine

The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'd' is correct.

Explanation of Solution

Under the IS-LM model, a change in the money supply and the change in the tax rates will have a great impact over the interest rate in the economy. This is because the IS-LM model explains the relationship between the interest rates and the asset market in the economy.

Option (d):

When there is a decrease in the money supply, the policy becomes a contractionary monetary policy. When the contractionary monetary policy takes place, the LM curve will shift upward, and the interest rate will increase, whereas the income level of the economy will decrease. Thus, option d is correct.

Option (a):

When there is an increase in the tax rate in the economy, the disposable income of the consumers will decline in the economy. Thus, the fiscal policy will become a contractionary policy. As a result of the contractionary policy, the IS curve will shift toward the left, and as a result, the interest as well as the income level of the economy will decline. Thus, option a is incorrect.

Option (b):

When there is a decrease in the tax rate in the economy, the disposable income of the consumers will increase in the economy. Thus, the fiscal policy will become an expansionary policy. As a result of the expansionary policy, the IS curve will shift toward the right, and as a result, the interest as well as the income level of the economy will increase. Thus, option b is incorrect.

Option (c):

When there is an increase in the money supply, the policy becomes an expansionary monetary policy. When the expansionary monetary policy takes place, the LM curve will shift downward, and the interest rate will fall, whereas the income level of the economy will increase. Thus, option c is incorrect.

Economics Concept Introduction

Tax: Tax is the unilateral payment that the people and the firms have to pay to the government for various purposes, such as the income earned, profit made, property owned, and so on.

Answer 7

Chapter 12, Problem 1QQ

To determine

The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

Answer 8

Expert Solution & Answer

Answer to Problem 1QQ

Option 'd' is correct.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Under the IS-LM model, a change in the money supply and the change in the tax rates will have a great impact over the interest rate in the economy. This is because the IS-LM model explains the relationship between the interest rates and the asset market in the economy.

Option (d):

When there is a decrease in the money supply, the policy becomes a contractionary monetary policy. When the contractionary monetary policy takes place, the LM curve will shift upward, and the interest rate will increase, whereas the income level of the economy will decrease. Thus, option d is correct.

Option (a):

When there is an increase in the tax rate in the economy, the disposable income of the consumers will decline in the economy. Thus, the fiscal policy will become a contractionary policy. As a result of the contractionary policy, the IS curve will shift toward the left, and as a result, the interest as well as the income level of the economy will decline. Thus, option a is incorrect.

Option (b):

When there is a decrease in the tax rate in the economy, the disposable income of the consumers will increase in the economy. Thus, the fiscal policy will become an expansionary policy. As a result of the expansionary policy, the IS curve will shift toward the right, and as a result, the interest as well as the income level of the economy will increase. Thus, option b is incorrect.

Option (c):

When there is an increase in the money supply, the policy becomes an expansionary monetary policy. When the expansionary monetary policy takes place, the LM curve will shift downward, and the interest rate will fall, whereas the income level of the economy will increase. Thus, option c is incorrect.

Answer 12

Economics Concept Introduction

Tax: Tax is the unilateral payment that the people and the firms have to pay to the government for various purposes, such as the income earned, profit made, property owned, and so on.

Answer 13

Ch. 12 - Prob. 1QQ Ch. 12 - Prob. 2QQ Ch. 12 - Prob. 3QQ Ch. 12 - Prob. 4QQ Ch. 12 - Prob. 5QQ Ch. 12 - Prob. 6QQ Ch. 12 - Prob. 1QR Ch. 12 - Prob. 2QR Ch. 12 - Prob. 3QR Ch. 12 - Prob. 4QR

The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

The factor that causes the income to decline and the interest rate to rise under the IS-LM model.

Answer to Problem 1QQ

Explanation of Solution

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Chapter 12 Solutions