Homework Answers
Increased government spending causes high liquidity in market and higher disposable incomes. As results to fund additional soending government borrows more money from external commercial borrowing or large banks which creates higheremand for money pushing up interests rates higher.
However since government spending is higher people tend to consume more and subsequently the aggregate demand rises causing rise in price level in short run and hence even inflation and Real GDP rises.
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3. Explain how an increase in government spending affects real interest rate, money demand and the...
1.Explain how permanent increase in national real money demand functions affects real and nominal exchange rates...
1.Explain how permanent increase in national real money demand functions affects real and nominal exchange rates in the long run. 2.A new government is elected and announces that once it is inaugurated, it will increase money supply. (a) Use the DD-AA model to study the economy‘s response to this announcement. (b) What is the further effect on the economy when the monetary expansion is actually implemented as promised?
please explain the reason. 10) Keynesians believe that the difference between using an increase in the...
please explain the reason.
10) Keynesians believe that the difference between using an increase in the money supply compared with an increase in government spending to increase aggregate demand in the event of a recession is that if government spending is increased, will be than if the money supply is increased. A) real interest rate; higher B) real interest rate; lower C) the price level; lower D) the price level; higher
Below is some data concerning the money market. Rate of Interest Asset Demand for Money $75...
Below is some data concerning the money market. Rate of Interest Asset Demand for Money $75 5% National income $740 720 700 680 660 6% 65 7% 8% 35. Refer to the information above to answer this question. If the transactions demand for money is 10 percent of national income and the supply of money is $135 then what would be the equilibrium interest rate? A) 4%. B) 5%. C) 6%. D) 7%. E) 8%. 36. Refer to the information...
An increase in government spending raises income: a. and the interest rate in the short run,...
An increase in government spending raises income: a. and the interest rate in the short run, but leaves both unchanged in the long run. b. in the short run, but leaves it unchanged in the long run, while lowering investment. c. in the short run, but leaves it unchanged in the long run, while lowering consumption. d. and the interest rate in both the short and long runs.
If at some specific interest rate the quantity of money demanded is less than the quantity...
If at some specific interest rate the quantity of money demanded is less than the quantity of money supplied, people will desire to buy interest-earning assets causing the interest rate to decrease. Select one: True False In recent years, the Fed has conducted policy by setting a target for the federal funds rate. Select one: True False A decrease in taxes is an expansionary fiscal policy designed to increase aggregate demand and reduce unemployment. Select one: True False If aggregate...
Suppose there is a reduction in aggregate real money demand, that is a negative shift in...
Suppose there is a reduction in aggregate real money demand, that is a negative shift in the aggregate real money demand function. Trace the short and long run effects on the exchange rate, interest rate, and price level.
On the graphs below, show the impact of an increase in government spending in the short...
On the graphs below, show the impact of an increase in
government spending in the short and long run. Assume that the
central bank does not change their inflation target. Consider both
the impacts on real GDP and also on the long run real rate of
interest (r*).
Real Interest Rate (r) AE Aggregate Expenditure Real Interest Rate (r) Monetary Policy Reaction Curve Long-Run Real Interest Rate (r) Target Inflation (1) Inflation (a) Long-Run Aggregate Supply Curve (LRAS) π↑ SRAS...
Briefly explain with a graph whether given statement is true or false. “An increase in government...
Briefly explain with a graph whether given statement is true or false. “An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.”
Briefly explain with a graph whether given statement is true or false. “An increase in government...
Briefly explain with a graph whether given statement is true or false. “An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.”
5. In the Keynesian model which of the following would be most likely to have the largest impact on aggregate demand a. an increase in the money supply b. a change in government expenditure c. a chan...
5. In the Keynesian model which of the following would be most likely to have the largest impact on aggregate demand a. an increase in the money supply b. a change in government expenditure c. a change in investment expectations d. both a and c e. both b and c 6. In the Keynesian theory of liquidity demand and the interest rate which of the following occurs during excess supply of money. a. individuals sell bonds, driving interest rates down...
please explain the reason.
10) Keynesians believe that the difference between using an increase in the money supply compared with an increase in government spending to increase aggregate demand in the event of a recession is that if government spending is increased, will be than if the money supply is increased. A) real interest rate; higher B) real interest rate; lower C) the price level; lower D) the price level; higher
Below is some data concerning the money market. Rate of Interest Asset Demand for Money $75 5% National income $740 720 700 680 660 6% 65 7% 8% 35. Refer to the information above to answer this question. If the transactions demand for money is 10 percent of national income and the supply of money is $135 then what would be the equilibrium interest rate? A) 4%. B) 5%. C) 6%. D) 7%. E) 8%. 36. Refer to the information...
On the graphs below, show the impact of an increase in
government spending in the short and long run. Assume that the
central bank does not change their inflation target. Consider both
the impacts on real GDP and also on the long run real rate of
interest (r*).
Real Interest Rate (r) AE Aggregate Expenditure Real Interest Rate (r) Monetary Policy Reaction Curve Long-Run Real Interest Rate (r) Target Inflation (1) Inflation (a) Long-Run Aggregate Supply Curve (LRAS) π↑ SRAS...
5. In the Keynesian model which of the following would be most likely to have the largest impact on aggregate demand a. an increase in the money supply b. a change in government expenditure c. a change in investment expectations d. both a and c e. both b and c 6. In the Keynesian theory of liquidity demand and the interest rate which of the following occurs during excess supply of money. a. individuals sell bonds, driving interest rates down...
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