Homework Answers
Ceteris paribus, an increase in the interest rate causes an upward movement along the investment line which leads to a fall in investment quantity. Statement 1 is incorrect
A steeper line indicates that the change in investment is lower relative to the change in interest rate. Therefore, a steeper investment line indicates a less sensitive investment scenario. Statement 2 is incorrect.
A forecast of a permanent demand increase causes the profit expectations to increase and hence as shown in the graph, the investment line shifts outward. Statement 3 is correct
A rise in corporate tax reduces the net profits of the firms and hence, the investment line shifts inwards. Statement 4 is incorrect
Ans: A forecast of a permanent demand increase shifts the investment line outwards
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Figure 14.10c depicts the aggregate investment function of an economy. Interest rate, profit rate (%) Investment...
The following figure depicts the aggregate demand (AD), theshort-run aggregate supply (SRAS), and the long-run...
The following figure depicts the aggregate demand (AD), the
short-run aggregate supply (SRAS), and the long-run aggregate
supply (LRAS) curves for an economy. The economy is initially at
long-run equilibrium, at point A. Suppose that there is an increase
in the amount of investment in the economy due to a reduction in
the real interest rate. This increase in investment shifts the AD
curve to the right, depicted below in the movement of the economy
from point A to point...
The graph below depicts an economy where an increase in aggregate demand has caused inflation. The...
The graph below depicts an economy where an increase in aggregate demand has caused inflation. The economy's current level of real GDP (Y) is above its long-run equilibrium. This is illustrated by the long-run aggregate supply curve (LRAS) and a price level 2) above the equilibrium value of Pe Fiscal Policy Price Level Real GDP Which of the following is an example of an automatic stabilizer that would help this economy move toward full employment again A reduced need for...
What happens when the price level rises? a. Interest rates rise, so firms increase investment. b. Interest rates...
What happens when the price level rises? a. Interest rates rise, so firms increase investment. b. Interest rates rise, so firms decrease investment. c. Interest rates fall, so firms increase investment. d. Interest rates fall, so firms decrease investment. 44. Which of the following shifts money demand to the left? a. an increase in the price level b. a decrease in the price level c. an increase in the interest rate d. a decrease in the interest rate 45. If the world real interest rate exceeds the Canadian real interest...
1. A decrease in interest rates will ___ the cost of acquiring funds for investment projects,...
1. A decrease in interest rates will ___ the cost of acquiring funds for investment projects, other things equal. -Increase -Have an indeterminate effect on -Not change -Decrease 2. The IS curve -Shows combinations of interest rates and output levels where the goods market is in equilibrium -Is upward sloping because higher interest rates increase aggregate demand -Was created by the CIA in the 1960s as anti-Soviet propaganda -Shifts if the money supply changes 3. If firms invent new technologies,...
Product 13) 13) The gap that exists when equilibrium real Gross Domestic (GDP) is greater than...
Product 13) 13) The gap that exists when equilibrium real Gross Domestic (GDP) is greater than full employment real Gross Domestic Product (GDP) is called a(n) A) demand gap. C) recessionary gap B) employment gap D) inflationary gap 14) 14) Economic growth will NOT result in inflation if aggregate demand shifts A) outward to the right at the same speed as aggregate supply B) outward to the right as aggregate supply shifts inward to the left. C) inward to the...
The net export function illustrates that:A) net exports are a positive function of domestic income....
The net export function illustrates that:A) net exports are a positive function of domestic income.B) net exports are independent of domestic income.C) net exports are a negative function of domestic income.D) imports are independent of domestic income.E) exports are independent of foreign income. Suppose the marginal propensity to import for country A is 0.4. Calculate the change in total value of imports of the country if national income increases by $100,000.A) $16,000B) $20,000C) $60,000D) $40,000E) $25,000 An MPI of 0.4 indicates that...
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...
Exhibit 8-8 Aggregate expenditures function Real consumption and Investment expenditures (trillions of dollars per year) om...
Exhibit 8-8 Aggregate expenditures function Real consumption and Investment expenditures (trillions of dollars per year) om 0 1 2 3 4 5 6 7 8 9 10 Real disposable income (trillions of dollars per year) 23. In Exhibit 8-8, what is the households' marginal propensity to consume (MPC)? 20.5. c. 0.8. b. 0.75 d. 1. 24. Using the Keynesian aggregate expenditures model, which of the following is true? a Macro equilibrium may occur at levels of real GDP other than...
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...
QUESTION 1 Let's assume that the country has the following production function Y depreciation rate of...
QUESTION 1 Let's assume that the country has the following production function Y depreciation rate of 4%, calculate the steady-state level of capital FIK) = UK Also this country has 800 units of capital. Assuming that the investment rate is 40%, and a a. 25 b. 100 0.80 d. 200 QUESTION 9 According to what we learned in class, why would long-term bonds have a higher interest rate then short term bonds? 1. A longer maturity for a bond provides...
The following figure depicts the aggregate demand (AD), the
short-run aggregate supply (SRAS), and the long-run aggregate
supply (LRAS) curves for an economy. The economy is initially at
long-run equilibrium, at point A. Suppose that there is an increase
in the amount of investment in the economy due to a reduction in
the real interest rate. This increase in investment shifts the AD
curve to the right, depicted below in the movement of the economy
from point A to point...
The graph below depicts an economy where an increase in aggregate demand has caused inflation. The economy's current level of real GDP (Y) is above its long-run equilibrium. This is illustrated by the long-run aggregate supply curve (LRAS) and a price level 2) above the equilibrium value of Pe Fiscal Policy Price Level Real GDP Which of the following is an example of an automatic stabilizer that would help this economy move toward full employment again A reduced need for...
Product 13) 13) The gap that exists when equilibrium real Gross Domestic (GDP) is greater than full employment real Gross Domestic Product (GDP) is called a(n) A) demand gap. C) recessionary gap B) employment gap D) inflationary gap 14) 14) Economic growth will NOT result in inflation if aggregate demand shifts A) outward to the right at the same speed as aggregate supply B) outward to the right as aggregate supply shifts inward to the left. C) inward to the...
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...
Exhibit 8-8 Aggregate expenditures function Real consumption and Investment expenditures (trillions of dollars per year) om 0 1 2 3 4 5 6 7 8 9 10 Real disposable income (trillions of dollars per year) 23. In Exhibit 8-8, what is the households' marginal propensity to consume (MPC)? 20.5. c. 0.8. b. 0.75 d. 1. 24. Using the Keynesian aggregate expenditures model, which of the following is true? a Macro equilibrium may occur at levels of real GDP other than...
QUESTION 1 Let's assume that the country has the following production function Y depreciation rate of 4%, calculate the steady-state level of capital FIK) = UK Also this country has 800 units of capital. Assuming that the investment rate is 40%, and a a. 25 b. 100 0.80 d. 200 QUESTION 9 According to what we learned in class, why would long-term bonds have a higher interest rate then short term bonds? 1. A longer maturity for a bond provides...
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