Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Chapter 13, Problem 4NP
To determine
To Evaluate: Effects on different economic variable under different condition using IS-LM model.
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Students have asked these similar questions
Which of the following will block an increase in the money supply from increasing real GDP (presumably to fight a recession)?
Group of answer choices
A) A situation in which business investment is negatively related to the interest rates.
B) A situation in which the money demand curve is negatively sloping.
C) A situation in which an increase in money supply causes a decrease in interest rates.
D) A situation in which Aggregate Demand is negatively sloping.
E) A situation in which business investment is completely insensitive to interest rate changes.
When there is a problem of a delay in terms of implementation of the fiscal policy, that would be categorized as _____.
execution lag
information lag
decision lag
Fiscal policy nowadays are focused on eliminating GDP gap
True
False
When the Central Bank controls the money supply by controlling the amount of high-powered money in the economy, that is called _____.
interest rate fixation
selective credit control
open market operations
required reserves ratio policy
The focus of monetary policy nowadays is by using interest rate as an indicator.
True
False
Respond to the following in a minimum of 175 words:
Explain the chain of events that occurs for expansionary and contractionary monetary policy to affect the long-run equilibrium level of real gross domestic product (GDP).
Compare and contrast expansionary and contractionary fiscal policy.
Chapter 13 Solutions
Macroeconomics (9th Edition)
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Similar questions
- Assume that the prevailing interest rate in this economy is 6%. If the central bank decides to reduce the interest rate to 4% then: (a) This is contractionary monetary policy action and the price of exports would increase; (b) This is expansionary monetary policy and exports would increase; (c) This is expansionary fiscal policy and imports will increase; (d) This is contractionary monetary policy and imports will decrease.arrow_forwardThe following parameters describe the structure of a hypothetical economy: Autonomous consumption=240 Autonomous investment=1000 Autonomous taxes=100 Autonomous government expenditure=400 Real money supply (M/P)=600 Tax rate=0.25 Marginal propensity to consume=0.8 Interest elasticity of investment=50 Interest elasticity of demand for money=62.5 Income elasticity of demand for money=0.25 a) Determine and explain the relative effectiveness of fiscal and monetary policies and State the values of the fiscal and monetary policy multipliers if the economy is in a liquidity trap. Explain. b) Use your answer in part a) above to determine equilibrium income and interest rate. c) If government expenditure is increased by 150 units, show how equilibrium interest rate and equilibrium income will change. Can you determine the extent to which investment is crowded out as a result? Explain.arrow_forwardIn the classical view, raising money supply will only cause inflation because Group of answer choices people will foresee inflation in the future with rational expectation. fiscal policy does not work in the short run. the velocity of money circulation is unpredictable. the real GDP output and the velocity of money circulation are fixed.arrow_forward
- In the Keynesian theory of liquidity preference money supply is related to interest rates investment is equal to saving interest rates equate the demand for and supply of goods and services money demand is a function of income and interest rates liquidity preference is a vertical linearrow_forwardAggregate demand shifts left if: taxes rise and shifts left if stock prices rise. taxes rise and shifts left if stock prices fall. taxes fall and shifts left if stock prices rise. taxes fall and shifts left is stock prices fall. Aggregate demand shifts right if at a given price level: net exports rise and shifts left if the money supply increases. net exports rise and shifts right if the money supply increases. net exports fall and shifts left if the money supply increases. net exports fall and shifts right if the money supply increases.arrow_forwardAssume that the consumption function is given by C = 200 + 0.5(Y – T) and the investment function is I = 1,000 – 200r, where r is measured in percent, G equals 300, and T equals 200.Assume that the equilibrium in the money market may be described as M/P = 0.5Y – 100r, and M/P equals 800. Calculate the equilibrium r and Y. Calculate the government spending multiplier.arrow_forward
- Prepare a mathematical presentation to show the relationship between the output and policy rate. - firstly derive the aggregate expenditures equation. - explain the role of the Keynesian multiplier - explain the policy rate-multiplier interaction. - finally how monetary policy effects on output through multiplier.arrow_forwardSuppose a liquidity trap situation exists. Which of the following is most likely to occur if taxes are cut? A) no change in output and no change in the interest rate B) an increase in output and an increase in the interest rate C) an increase in output and little change in the interest rate D) an increase in output and a reduction in the interest rate E) none of the abovearrow_forwardWhen the Fed controls the rate of growth of the money supply to foster macroeconomic stability, this is called: A. Fiscal Policy B. Monetary Policy C. Money Supply Policy D. Fed Policyarrow_forward
- There is an increase in government expenditures financed by taxes and its overall short-run effect on output is larger than the change in government spending. Which of the following is correct? A) By themselves, both the change in the output and the change in the interest rate decrease desired investment. B) By themselves, both the change in output and the change in the interest rate increase desired investment. C) By itself, the change in the output decreases desired investment spending and by itself the change in the interest rate increases desired investment spending. D) BY itself, the change in output increases desired investment spending and by itself the change in the interest rate decreases desired investment spending.arrow_forwardAssume that the money demand function is (M / P) ^ d = 2, 200 - 200r , where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. The consumption function is given by C = 200 + 0.5(Y - T) and the investment function is I = 1.000 - 200r , where r is measured in percent , G equals 300, and T equals 200. a) What is the equilibrium level of interest rate determined at the money market?arrow_forward
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