Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 14, Problem 11E
To determine
To compute:
The expected increase in the money supply.
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Assuming a constant money supply, government expenditures can be financed by which of the following? Check all that apply.
Borrowing
Money supply
Interest rate
Taxes
Suppose a government has a tax revenue shortfall. Will hyperinflation inevitably follow unless the government cuts its fiscal expenditures?
111.If money demand does not depend on income, then the ______ curve is ______.
A)IS; vertical
B)IS; horizontal
C)LM; vertical
D)LM; horizontal
112.If money demand is extremely sensitive to the interest rate, then the ______ curve is ______.
A)IS; vertical
B)IS; horizontal
C)LM; vertical
D)LM; horizontal
113.If the government wants to raise investment but keep output constant, it should:
A)adopt a loose monetary policy but keep fiscal policy unchanged.
B)adopt a loose monetary policy and a loose fiscal policy.
C)adopt a loose monetary policy and a tight fiscal policy.
D)keep monetary policy unchanged but adopt a tight fiscal policy.
114.A tax cut combined with tight money, as was the case in the United States in the early 1980s, should lead to a:
A)rise in the real interest rate and a fall in investment.
B)fall in the real interest rate and a rise in investment.
C)rise in both the real interest rate and investment.
D)fall in both the real interest…
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- Consider an economy described by the following equations. Y=C+I+G C=100+.75(Y−T) I=500−50r G=125 T=100 Where: Y is GDP, C is consumption, I is investment, G is government spending, T is taxes and r is the rate of interest. Questions: a. Suppose the Central Bank policy is to adjust the money supply to maintain the interest rate at 4 percent, so r=4. What is the value of output? Show your solution. b. Assuming that no change in fiscal policy, what is the effect of a reduction in interest rate from 4 percent to 3 percent on equilibrium output. Show your solution. c. In this case, explain the policy that was used by the policymaker to target the aggregate demand.arrow_forwardExplain what kind of fiscal policy and what kind of monetary policy are likely to reduce GDP.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
- Assuming that the money demand function depends on income, the interest rate and the price level as presented in class, then if planned investment decreases as the interest rate increases, the size of the government spending multiplier for expansionary fiscal policy will be________ than it was when we ignored the money market. a)exactly the same b)larger c)smallerarrow_forwardWhich of the following reduces the interest rate? a. a decrease in government expenditures and a decrease in the money supply b. an increase in government expenditures and an increase in the money supply c. an increase in government expenditures and a decrease in the money supply d. a decrease in government expenditures and an increase in the money supplyarrow_forwardA decrease in government spending or an increase in taxes will: a) shift the money supply curve to the right b) shift the money supply curve to the left c) shift the money demand curve to the left d) shift the money demand curve to the rightarrow_forward
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