By setting the federal funds rate, the Fed indirectly adjusts long-term interest rates, which increases investment spending and eventually affects employment, output and inflation. Changes in interest rates affect the public's demand for goods and services and, thus, aggregate investment spending
Which government policy raises the interest rate and raises investment spending?
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.
A decrease in government spending decreases the interest rate and so investment spending decreases. decreases the interest rate and so investment spending increases. increases the interest rate and so investment spending decreases. increases the interest rate and so investment spending increases.
One channel by which government spending crowds out private spending is the interest rate channel. Explain in words what this channel is and illustrate the effect using the goods market equilibrium graph and investment and consumption demand graphs.
if crowding out occurs, an increase in government spending a) decreases the interest rate and consumption and investment spending rise b) decrease the interest rate and consumption and investment spending decline c) increases the interest rate and consumption and investment spending decline d) increase the interest rate and consumption and investment spending rise
Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net exports: Ca = 1,500 – 10r; c = 0.6; Ta = 1,800; Ip = 2,400 – 50r; G = 2,000; NX = -200 (a)Derive Ep and...
Q60. If the government increases spending and raises taxes by just enough to finance this increase it will-------------------- a. Reduce output b. increase the MPC c. leave output unchanged d. increase output Q61. Starting from a balanced budget, for a given tax rate, an increase in income will cause the government budget to a. Remain unchanged b. move into surplus c. move into deficit d. both b and c Q62. For given government spending and taxation, the government budget deficit...
(1) Which of the following is not a tool of fiscal policy? Government spending Taxes Tax incentives Private investment (2) Which of the following statements helps to explain why the economy can be slow to recover from a recession? Workers are less motivated because of reduced expectations, which reduces total output. There is not as much money in circulation to fuel new investment. Wages do not fall quickly, which delays an adjustment to a higher output level....
Explain how fiscal policy (government spending and taxes) and monetary policy (determining interest rates) affect the level of output and employment in the economy according to Keynesian theory. What fiscal and monetary policies should the government follow to pull the economy out of a recession?
1) Suppose economists observe that a $10B increase in government spending raises aggregate demand in the economy by $30B. If this country does not trade and there is no crowding out of private sector spending, what would MPC be equal to? 2) Do you agree or disagree with the following statement? Explain your answer “An increase in government purchases (G) is usually a more effective policy than an increase in transfer payments when the goal is to eliminate a recessionary...
Compare the effects of an expansionary fiscal policy action—an increase in government spending financed by government bond sales to the public, for example—in the Keynesian and classical models. Include in your answer the effects of this policy shift on the level of real income, employment, the price level, and the rate of interest.