Consider the impact of a decrease in effective tax rate on capital. The shock is most...
Consider the impact of a decrease in effective tax rate on capital. The shock is most likely to affect the
A.
FE line.
B.
LM curve.
C.
IS curve.
D.
AS curve.
In the short run, before general equilibrium is restored, the IS curve shifts _____ and causes _____.
A.
up and to the right; no change in the real interest rate or the price level
B.
up and to the right; the real interest rate to rise and the price level to remain unchanged
C.
down and to the left; no change in the real interest rate or the price level
D.
down and to the left; the real interest rate to decline and the price level to decline
After general equilibrium is restored, the real interest rate is _____ and the price level is _____. (Compare with the situation before the shock.)
A.
higher; higher
B.
unchanged; unchanged
C.
lower; lower
D.
unchanged; higher
Homework Answers
a decline in the effective tax rate on capital is most likely to increase the investment spending and brings a new short run equilibrium in the goods market. Because the real GDP is increased along with the rate of interest it is likely that IS curve will shift. Select option C
Because ISLM model considers price level to be unchanged, only real interest is increased when the IS curve shift to the right. Option B is correct
Option B is correct. Real interest rate will come down as LM curve will shift outward.
Add Answer to:
Consider the impact of a decrease in effective tax rate on
capital. The shock is most...
OY 10. By referring to Figure 7-1, an increase in the money stock a shifts the...
OY 10. By referring to Figure 7-1, an increase in the money stock a shifts the LM schedule to the right from LMoto LM b shifts the LM schedule to the left from LMo to LM e leaves the LM curve unchanged at LM. d. shifts neither the IS nor the LM schedule. 11. Changes in all of the following shift the LM curve except a. the price level. b. income. c. the money supply. d. money demand. e. all...
level of aggregate output if the aggrega All else equal, a cost shock that shifts the aggregate supply curve to the lef...
level of aggregate output if the aggrega All else equal, a cost shock that shifts the aggregate supply curve to the left leads to a demand curve is downward sloping. price level and a A. higher; lower B. higher; higher C. lower; lower D. lower; higher When the AD curve is vertical and a cost shock shifts the AS curve to the left, there is no change in output Α. False B. True
1. If the money demand does not depend on the interest rate, then the LM curve...
1. If the money demand does not depend on the interest rate, then the LM curve ______. a. is horizontal b. is vertical c. shifts up to the right d. shifts down to the right 2. If money demand becomes more income elastic, the LM curve will __________. a. become flatter b. shift to the right c. become stepper d. shift to the left 3. The labour force is defined as _________. a. the total number of working age individuals...
factors that shift the AD Curve include A) government purchases B) autonomous investment C) taxes D)...
factors that shift the AD Curve include A) government purchases B) autonomous investment C) taxes D) all of the above E) none of the above 33. If government cuts taxes A) after tax income should increase shifting AD to the left to a lower cu B) after tax income should increase shifting AD to the right to a higher eq output C) after tax income and the equilibrium level of output remain unchanged D) after tax income remains unchanged but...
20. Banks decide to raise the interest rate they pay on checking accoun action would A)...
20. Banks decide to raise the interest rate they pay on checking accoun action would A) increase money demand, shifting the LM curve up and to the ci B) increase money demand, shiftino the IM curve down and to the C) decrease money demand, shifting the M curve up and to the tem D) decrease money demand, shifting the LM curve down and to cing accounts from 1% to 2%. This curve down and to the right. & the LM...
The three parts that start with "The effect" the possible answets for the blanks are. First...
The three parts that start with "The effect" the possible
answets for the blanks are.
First blank- IS, FE, LM
Second blank- Shifts Left , Shifts riggt
Third blank- AD, SRAS, LRAS,
Fourth blank- shifts right/up , shifts left/down
The last section options are "Overall, we know that in the
short run <output definitely decreases OR output defiently
increases OR there is no effect on output OR the effect on output
is unclear and depends in ghe relative magnitufe of...
A temporary adverse productivity shock would: A) shift the FE line to the right and leave...
A temporary adverse productivity shock would: A) shift the FE line to the right and leave the IS curve unchanged B) shift the FE line to the left and leave the IS curve unchanged C) shift the FE line to the left and the IS curve up D) have no effect on the FE line please explain!
23. Consider a supply shock in the static model that shifts the Short Run Aggregate Supply...
23. Consider a supply shock in the static model that shifts the Short Run Aggregate Supply curve as shown in the figure below (SRAS; to SRAS2): LRAS Price level (GDP deflator, 2009 = 100) SRASZ SRAS Real GDP (trillions of 2009 dollars) If instead of adopting monetary and fiscal policy, the government chooses to remain idle, what would be the long-term consequences of the shock? A) Real GDP will return to its original level, and there will permanently be a...
1) The Fed does easy money policy. As a result, the a. interest rate rises and...
1) The Fed does easy money policy. As a result, the a. interest rate rises and the LM curve shifts left b. interest rate falls and the LM curve shifts left c. interest rate rises and the LM curve shifts right d. interest rate falls and the LM curve shifts right
B3. Open Economy IS-LM-FE model: The behaviour of households and firms in an open economy is...
B3. Open Economy IS-LM-FE model: The behaviour of households and firms in an open economy is represented by the following equations: Full-employment outputY-1200 red consumption Cd = 350 + 0.5Y-200r : Desired investmentd 250-300r Government purchasesG 95 Net exports : NX = 100-01-05e Real exchange rate : 90. Assume that the real interest rate, r, does not deviate from the foreign interest rate and that the economy is initially in general equilibrium. ve the open-economy IS curve writing the real...
OY 10. By referring to Figure 7-1, an increase in the money stock a shifts the LM schedule to the right from LMoto LM b shifts the LM schedule to the left from LMo to LM e leaves the LM curve unchanged at LM. d. shifts neither the IS nor the LM schedule. 11. Changes in all of the following shift the LM curve except a. the price level. b. income. c. the money supply. d. money demand. e. all...
level of aggregate output if the aggrega All else equal, a cost shock that shifts the aggregate supply curve to the left leads to a demand curve is downward sloping. price level and a A. higher; lower B. higher; higher C. lower; lower D. lower; higher When the AD curve is vertical and a cost shock shifts the AS curve to the left, there is no change in output Α. False B. True
factors that shift the AD Curve include A) government purchases B) autonomous investment C) taxes D) all of the above E) none of the above 33. If government cuts taxes A) after tax income should increase shifting AD to the left to a lower cu B) after tax income should increase shifting AD to the right to a higher eq output C) after tax income and the equilibrium level of output remain unchanged D) after tax income remains unchanged but...
20. Banks decide to raise the interest rate they pay on checking accoun action would A) increase money demand, shifting the LM curve up and to the ci B) increase money demand, shiftino the IM curve down and to the C) decrease money demand, shifting the M curve up and to the tem D) decrease money demand, shifting the LM curve down and to cing accounts from 1% to 2%. This curve down and to the right. & the LM...
The three parts that start with "The effect" the possible
answets for the blanks are.
First blank- IS, FE, LM
Second blank- Shifts Left , Shifts riggt
Third blank- AD, SRAS, LRAS,
Fourth blank- shifts right/up , shifts left/down
The last section options are "Overall, we know that in the
short run <output definitely decreases OR output defiently
increases OR there is no effect on output OR the effect on output
is unclear and depends in ghe relative magnitufe of...
23. Consider a supply shock in the static model that shifts the Short Run Aggregate Supply curve as shown in the figure below (SRAS; to SRAS2): LRAS Price level (GDP deflator, 2009 = 100) SRASZ SRAS Real GDP (trillions of 2009 dollars) If instead of adopting monetary and fiscal policy, the government chooses to remain idle, what would be the long-term consequences of the shock? A) Real GDP will return to its original level, and there will permanently be a...
B3. Open Economy IS-LM-FE model: The behaviour of households and firms in an open economy is represented by the following equations: Full-employment outputY-1200 red consumption Cd = 350 + 0.5Y-200r : Desired investmentd 250-300r Government purchasesG 95 Net exports : NX = 100-01-05e Real exchange rate : 90. Assume that the real interest rate, r, does not deviate from the foreign interest rate and that the economy is initially in general equilibrium. ve the open-economy IS curve writing the real...
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