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. |
Homework Answers
Option B.
- When the government spending increases as a result of an Expansionary fiscal policy, the income level will increase due to the reduction in tax rates.
- As a result of this the aggregate demand shifts to the right as consumption and savings increase.
- But this happens only in a short run, while in the long run an increase in the government spending will leave the income unchanged as the shift of the aggregate demand curve depends on the spending multiplier.
Add Answer to:
An increase in government spending raises income:
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Which government policy raises the interest rate and raises investment spending?
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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
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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...
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of a closed economy. when 6. According to the classical long-run macroeconomic model of a co...
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An increase in the money supply: increases income and lowers the interest rate in both the short and long runs increases income in both the short and long runs, but leaves the interest rate unchanged in the long run lowers the interest rate in both the short and long runs, but leaves income unchanged in the long run.lowers the interest rate and increases income in the short run, but leaves both unchanged in the long run.
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...
If the economy is close to full employment, an increase in government spending may increase GDP in the short run, but in the long run, this policy may: reduce investment in new capital. make domestic businesses less competitive in international markets if the dollar appreciates in value raise interest rates and reduce consumer expenditures on cars and new houses All of these options are correct Which of the following is considered contractionary fiscal policy? The government increases defense spending due...
of a closed economy. when 6. According to the classical long-run macroeconomic model of a co decrease and government spending is unchanged a consumption and investment both increase b. consumption and investment both decrease c consumption increases and investment decreases d. consumption decreases and investment increases. 7. Suppose a business-friendly billionaire becomes president. As a result, businesses become optimistic about the future and more eager than before to increase their investment spending According to the classical long-run macroeconomic model of...
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