Homework Answers
20) If real interest rate is lower than Equilibrium interest rate in classical model, then it means that at that rate of interest, demand for loanable funds< supply of loanable funds. It also means that people are saving less as indicated by low supply of loanable funds which means they are consuming more. Therefore, here total demand for goods is higher than the total supply.
Thus, option A is correct.
21) If total demand for goods is less than total supply of goods, it means that people are consuming less and saving more. Owing to this, the Supply of loanable funds would increase. This will lead to a fall in real interest rates.
Therefore, option A is correct.
22) In the classical model, when goods Market is in equilibrium, it means that total savings equal total investment. None of the above options are correct.
Therefore, option D is correct.
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QUESTION 20 In the classical model, if the real interest rate is lower than the equilibrium...
queation 4&5 QUESTION 4 The classical model indicates that at the equilibrium interest rate, Saving is less than...
queation 4&5
QUESTION 4 The classical model indicates that at the equilibrium interest rate, Saving is less than investment. unnecessary for investment. equal to investment, greater than investment. QUESTIONS Which of the following is a TRUE statement? Classical economists believed real GDP adjusted more than prices when aggregate demand fell, while Keynes argued that prices adjusted more than output. Classical economists believed price adjusted more than output when aggregate demand fell, while Keynes argued real GDP adjusted more than prices...
1) If the substitution effect of the real interest rate on saving is smaller than the...
1) If the substitution effect of the real interest rate on saving is smaller than the income effect of the real interest rate on saving, then a rise in the real interest rate leads to a in consumption and a_ _in saving, for someone who's a lender (saver). A) fall; fall B) fall; rise C) rise; fall D) rise, rise 2) For a borrower, an increase in the real interest rate will lead to A) higher current consumption and less...
of a closed economy. when 6. According to the classical long-run macroeconomic model of a co...
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...
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...
2. Classical economists and interest rate flexibility According to Say's law, funds (money) saved...
2. Classical economists and interest rate flexibility According to Say's law, funds (money) saved must give rise to an equal amount of funds (money) invested The following graph shows the saving curve (S) and the investment curve (I) for a small economy Show the effect of an increase in total saving at any interest rate in this economy, which behaves according to the classical view, by dragging one or both of the curves. Note: Tool tip: Click and drag one...
3. Suppose that prices are completely rigid, so that the nominal and the real interest rate...
3. Suppose that prices are completely rigid, so that the nominal and the real interest rate are necessarily equal. Money-market equilibrium is therefore given b L(r,Y). a. Suppose that government purchases increase, and that the central bank adjusts the money supply to keep the interest rate unchanged. i. Does the money supply rise or fall? ii. What happens to consumption and investment? b. Suppose that government purchases increase, and that the central bank adjusts the money supply to keep output...
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...
1. TRUE/FALSE( 1 mark per question, 20 marks in total) [1) An economy's income is the...
1. TRUE/FALSE( 1 mark per question, 20 marks in total) [1) An economy's income is the same as its expenditure because every transaction has a buyer and a seller. 2) GDP is the market value of all final goods and services produced by a country's citizens in a given period of time. [3) If nominal GDP is $10,000 and real GDP is $8,000, then the GDP deflator is 125. 14) Other things equal, in countries with higher levels of real...
2. Classical economists and interest rate flexibility According to Say's law, funds (money) saved must give...
2. Classical economists and interest rate flexibility According to Say's law, funds (money) saved must give rise to an equal amount of funds (money) invested. The following graph shows the saving curve (S) and the investment curve (I) for a small economy. Show the effect of an increase in total saving at any interest rate in this economy, which behaves according to the classical view, by dragging one or both of the curves. Note: Tooltip: Click and drag one or...
Intermediate Macro Question Consider a small open economy in the classical model, assume the production function...
Intermediate Macro Question Consider a small open economy in the classical model, assume the production function is y=1000(square root KL) K=20 L=5 Government spending is 1000 and taxes are 1000. the consumption function is c=1500+0.5(Y-T) investment equation is 1000-50r=I net export function is 5000-5000e world interest rate is r=r*=10 Solve 1 income 2 consumption 3 National Savings 4. Investments 5. Trade balance 6 Real exchange rate 7. The real world interest rate rises to 20 solve for the new values...
queation 4&5
QUESTION 4 The classical model indicates that at the equilibrium interest rate, Saving is less than investment. unnecessary for investment. equal to investment, greater than investment. QUESTIONS Which of the following is a TRUE statement? Classical economists believed real GDP adjusted more than prices when aggregate demand fell, while Keynes argued that prices adjusted more than output. Classical economists believed price adjusted more than output when aggregate demand fell, while Keynes argued real GDP adjusted more than prices...
1) If the substitution effect of the real interest rate on saving is smaller than the income effect of the real interest rate on saving, then a rise in the real interest rate leads to a in consumption and a_ _in saving, for someone who's a lender (saver). A) fall; fall B) fall; rise C) rise; fall D) rise, rise 2) For a borrower, an increase in the real interest rate will lead to A) higher current consumption and less...
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...
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...
2. Classical economists and interest rate flexibility According to Say's law, funds (money) saved must give rise to an equal amount of funds (money) invested The following graph shows the saving curve (S) and the investment curve (I) for a small economy Show the effect of an increase in total saving at any interest rate in this economy, which behaves according to the classical view, by dragging one or both of the curves. Note: Tool tip: Click and drag one...
3. Suppose that prices are completely rigid, so that the nominal and the real interest rate are necessarily equal. Money-market equilibrium is therefore given b L(r,Y). a. Suppose that government purchases increase, and that the central bank adjusts the money supply to keep the interest rate unchanged. i. Does the money supply rise or fall? ii. What happens to consumption and investment? b. Suppose that government purchases increase, and that the central bank adjusts the money supply to keep output...
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...
1. TRUE/FALSE( 1 mark per question, 20 marks in total) [1) An economy's income is the same as its expenditure because every transaction has a buyer and a seller. 2) GDP is the market value of all final goods and services produced by a country's citizens in a given period of time. [3) If nominal GDP is $10,000 and real GDP is $8,000, then the GDP deflator is 125. 14) Other things equal, in countries with higher levels of real...
2. Classical economists and interest rate flexibility According to Say's law, funds (money) saved must give rise to an equal amount of funds (money) invested. The following graph shows the saving curve (S) and the investment curve (I) for a small economy. Show the effect of an increase in total saving at any interest rate in this economy, which behaves according to the classical view, by dragging one or both of the curves. Note: Tooltip: Click and drag one or...
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