EBK STUDY GUIDE FOR MANKIW'S BRIEF PRIN
7th Edition
ISBN: 8220103455329
Author: Mankiw
Publisher: CENGAGE L
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Chapter 16, Problem 1QR
To determine
Liquidity preference theory and downward sloping of aggregate demand.
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What is the theory of liquidity preference? How
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Chapter 16 Solutions
EBK STUDY GUIDE FOR MANKIW'S BRIEF PRIN
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- Explain the liquidity trap. Do you think that the theory accurately describes the events after the Great recessionarrow_forwardWhy does a reduction in aggregate demand reduce real output, rather than the price level? Why might a full-strength multiplier apply to a decrease in aggregate demand?arrow_forwardIn one or two sentences, explain why Keynesian economists believe that increasing the money supply will be effective at increasing aggregate demand in the short run.arrow_forward
- Explain the likely effects of a U.S. boom on the demand for Canadian exports. What would be the effect on Canadian aggregate demand? Suppose the Bank of Canada viewed its monetary policy as being appropriate for keeping GDP of Canada close to potential GDP. What would you then predict to be the Central Bank's response to the foreign boom in U.S.?arrow_forwardExplain in words how investment multiplier and the interest sensitivity of aggregate demand affect the slope of the IS curve.arrow_forwardExplain with example how a reduction in taxes without a reduction in government spending may have no impact on aggregate demand.arrow_forward
- Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? Explain.arrow_forwardWhich of the following are likely to increase investment and as a result, aggregate demand? A) falling real interest rates B) rising real interest rates C) increased business taxesarrow_forwardSuppose that with the liquidity facilities and asset purchase programs, the Bank of Canada increased the money supply. How do you expect this to affect consumption and investment in equilibrium?arrow_forward
- Suppose that government spending is increased at the same time when an autonomous monetary policy tightening occurs. What will happen to the position of the aggregate demand curve?arrow_forwardExplain why the Federal Reserve is less likely to change interest rates following an increase in aggregate sunnly compared to an increase in aggregate demand.arrow_forwardDoes the level of stocks ,held by firms, change when aggregate demand falls short of aggregate supply?arrow_forward
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