EBK ECONOMICS TODAY
18th Edition
ISBN: 9780100663268
Author: Miller
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 16P
To determine
The Ricardian equivalence theorem prediction on to annual saving flow and accumulated household savings if European governments were to bring their public spending and
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
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.
Macroeconomics
Question No.5
State whether the following statements are true, false or uncertain. Also provide the explanation of false statements:
The higher the level of income, higher will be the marginal propensity to consume.
If marginal propensity to consume increases, aggregate demand curve will become flatter.
The value of marginal propensity to consume must lies between 0 and 1.
There is a direct relationship between interest rate and money supply.
Government will use expansionary fiscal policy to control inflation.
Assume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Also in year 2, the cost of lumber used to build homes decreases. Which of the following is most likely to be the equilibrium change?
a
The equilibrium will be at point C before the change in expectations and point B after the change
b
The equilibrium will be at point A before the change in expectations and point B after the change
c
The equilibrium will be at point A before the change in expectations and point E after the change
d
The equilibrium will be at point E before the change in expectations and point A after the change
Chapter 13 Solutions
EBK ECONOMICS TODAY
Ch. 13.D - Prob. 1PCh. 13.D - Prob. 2PCh. 13.D - Prob. 3PCh. 13 - Prob. 13.1LOCh. 13 - Prob. 13.2LOCh. 13 - Prob. 13.3LOCh. 13 - Prob. 13.4LOCh. 13 - Prob. aFCTCh. 13 - Prob. bFCTCh. 13 - Prob. 1CTQ
Ch. 13 - Prob. 2CTQCh. 13 - Prob. 1FCTCh. 13 - Prob. 2FCTCh. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10PCh. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16P
Knowledge Booster
Similar questions
- 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?arrow_forwardWhat is the relationship between the marginal and average propensity to consume in the standard Keynesian consumption function and permanent income hypothesis?arrow_forwardIn the IS curve model, the consumer demand can be represented by the following equation: C = a + B(YT) where C is consumption, Y is gross domestic product and T are taxes. Which of the following hold(s) ? Select one or more: a.The value of ß can be any number greater than 0 b. If household income increases by 1, consumption increases by C.The value of a can be any number greater than 0 d. a represents consumption required to survive e. Ca represents consumption for leisure f. According to the equation, the interest rate can influence consumer demandarrow_forward
- If the simple Keynesian macroeconomic model is used to explain expansionary fiscal policy, which of the following can be concluded with regard to macroeconomic equilibrium? a) That firms experience an unplanned increase in their inventories. b) The economy will move towards equilibrium. c) Inventory levels will rise above the equilibrium level. d) The effect on equilibrium cannot be determined given the information givenarrow_forwardIn the discussion of the life-cycle hypothesis, income is assumed to be constant during the period before retirement. For most people, however, income grows over their lifetimes. How does this growth in income influence the lifetime pattern of consumption and wealth accumulation shown in Figure 17-12 under the following conditions? Consumers can borrow, so their wealth can be negative. Consumers face borrowing constraints that prevent their wealth from falling below zero. Do you consider case (a) or case (b) to be more realistic? Why?arrow_forwardIn consumption theory, what is meant by the expression “consumption smoothing”? Why is consumption smoothing a key element of the life-cycle hypothesis and permanent income hypothesis? (100 words max)arrow_forward
- With the theoritical of Permanent-Income Hypothesis in mind, explain how Friedman sought to reconcile the evidence about consumption from cross-sectional data with that from time series macroeconomic data?.arrow_forwardFiscal policy consists of intentional changes in the government's spending levels or tax policies designed to achieve specific macroeconomic goals such as full employment, price stability, or economic growth. By influencing the amount of total spending in the economy, the government can influence the position of the aggregate demand curve. Our theory tells us that aggregate demand will shift by a multiple of the change in spending or taxes. However, spending and tax changes have slightly different effects, as changes in taxes affect spending only indirectly by changing the amount of disposable income. An expansionary fiscal policy may be implemented to fight a recession, while a contractionary policy may be appropriate to control demand-pull inflation. Exploration: How do changes in government spending and taxes affect the equilibrium price level and real GDP? Discuss in detail use your economics textbook.arrow_forwardPlease answer all the three An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to__________ and the IS curve to shift to the__________ everything else held constant. A) fall; right B) rise; left C) fall; left D) rise: right Which of the following statements concerning IS-MP analysis is true? A) Changes in net exports arising from a change in interest rates causes a shift in the IS curve. B) Expansionary fiscal policy will cause the interest rate to fall. C) A fall in the money supply shifts the LM curve to the right. D) For a given change in taxes, the IS curve will shift less than for an equal change in government spending. LVTS participants with positive settlement balances at the end of the day.________ A) are paid the overnight rate B) are paid the bank rate less 50 basis points C) are paid the prime rate D) are paid the bank ratearrow_forward
- Macroeconomic forecasts from different computer models are usually Very different because the models are based on different data sets, different assumptions, and different macroeconomic theories. Very similar because the models use the same data, and standardized assumptions so it does not matter whether a supply-side economist or a Keynesian economist conducts the research. Very similar because the models must conform to high government regulatory standards. About the same because political objectives never conflict with good economic policies. Very different because it is impossible to determine who funded the research.arrow_forwardSuppose policymakers decide to reduce the budget deficit by cutting government spending. Use the Keynesian Cross model to illustrate graphically the impact of a reduction in government purchases on the equilibrium level of income. Be sure to label: (a) the axes, (b) the curves, (c) the initial equilibrium values, (d) the direction the curve shifts, and (e) the final equilibrium values. Explain in words what happens to equilibrium income as a result of the cut in government spending. (100 words max)arrow_forwardIn the Fisher model, explain why a rational and forward-looking consumer facing borrowing constraints may end up consuming the same amount as predicted by the Keynesian model.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningEconomics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning