7. A downward-sloping investment function yields a falling IS curve, but a downward-sloping demand for real money balance curve yields a rising LM curve. Why?
7. A downward-sloping investment function yields a falling IS curve, but a downward-sloping demand for real money balance curve yields a rising LM curve. Why?
Homework Answers
Downward sloping investment function means higher level of interest rate reduces investment thus reducing aggregate demand and equilibrium level of income. Thus the IS curve is downward sloping.
LM does not depend only on demand for real money balances but also on supply of money which is vertical as it is fixed by central bank.
LM curve is the locus of money market equilibrium.
LM curve is positively sloped because increase in interest rate reduces the demand for money. To keep money demand equal to supply, income has to rise.
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7. A downward-sloping investment function yields a falling IS curve, but a downward-sloping demand for real money balance curve yields a rising LM curve. Why?
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Financial markets and the LM relation. a) Explain why the money demand curve is downward sloping and what b) What types of policies can the central bank implement to reduce the interest c) Define the velocity of money. What effect does an increase in interest rate d) Illustrate graphically the effect of a drop in nominal income on the money e) Illustrate graphically the effect of a purchase of bonds by the Federal Reserve factor(s) cause shifts in the money...
can you explain clearly why the aggregate demand curve is downward sloping using the money market...
can you explain clearly why the aggregate demand curve is downward sloping using the money market ? (It would be highly appreciated if you explain with typing no handwritten)
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Why is the AD curve downward? sloping pick one answer below: A. The higher interest rate produced by a lower price level leads to more consumption? spending, investment? spending, and net exports. B. An increase in the price level decreases real money? balances, which raises the interest rate. The higher interest rate decreases consumption? spending, investment? spending, and net exports. C. AD slopes downward for the same reasons the demand for an individual good slopes? downward: because of income and...
Explain in detail why the aggregate demand curve slopes downward in the standard IS-LM model. Then...
Explain in detail why the aggregate demand curve slopes downward in the standard IS-LM model. Then explain why the Long-run Aggregate Supply Curve is vertical.
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1. Explain why the aggregate demand (AD) curve is downward slopping (on the two dimensional price...
1. Explain why the aggregate demand (AD) curve is downward slopping (on the two dimensional price and output planes) in the neoclassical ASAD model. 2. Explain why the aggregate demand (AD) curve is downward slopping (on the two dimensional price and output planes) in the Post-Keynesian ASAD model. 3-4. In the neoclassical ASAD model, let us suppose that the interest rate has no effect on investment. What does this imply for (1) the slope of the IS curve, for (2)...
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Why is the Phillips curve downward sloping? Use the model of aggregate demand and aggregate supply to explain with graph. (18marks)
The money demand curve is: O Upward sloping because the opportunity cost of holding money rises...
The money demand curve is: O Upward sloping because the opportunity cost of holding money rises with the interest rate. O Downward sloping because the opportunity cost of holding money is inversely related to the interest rate. Downward sloping because the opportunity cost of holding money rises as the interest rate falls. O Downward sloping because the opportunity cost of holding money rises as the interest rate rises.
1. What is $ curve and why is it downward sloping? What is the meaning of...
1. What is $ curve and why is it downward sloping? What is the meaning of the slope of IS curve? 2. When short-run output is O how much is the real interest rate R? 3. What is the equation for IS curve? What factors will shift IS curve? 4. How the consumption is determined in IS curve? How the investment is determined in IS curve? 5. Define principle-agent problem, adverse selection, and moral hazard and give examples for each...
IS/LM: Use the same setup as #1, but now Investment spending is a function of the real interest r...
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Financial markets and the LM relation. a) Explain why the money demand curve is downward sloping and what b) What types of policies can the central bank implement to reduce the interest c) Define the velocity of money. What effect does an increase in interest rate d) Illustrate graphically the effect of a drop in nominal income on the money e) Illustrate graphically the effect of a purchase of bonds by the Federal Reserve factor(s) cause shifts in the money...
1. Explain why the aggregate demand (AD) curve is downward slopping (on the two dimensional price and output planes) in the neoclassical ASAD model. 2. Explain why the aggregate demand (AD) curve is downward slopping (on the two dimensional price and output planes) in the Post-Keynesian ASAD model. 3-4. In the neoclassical ASAD model, let us suppose that the interest rate has no effect on investment. What does this imply for (1) the slope of the IS curve, for (2)...
The money demand curve is: O Upward sloping because the opportunity cost of holding money rises with the interest rate. O Downward sloping because the opportunity cost of holding money is inversely related to the interest rate. Downward sloping because the opportunity cost of holding money rises as the interest rate falls. O Downward sloping because the opportunity cost of holding money rises as the interest rate rises.
1. What is $ curve and why is it downward sloping? What is the meaning of the slope of IS curve? 2. When short-run output is O how much is the real interest rate R? 3. What is the equation for IS curve? What factors will shift IS curve? 4. How the consumption is determined in IS curve? How the investment is determined in IS curve? 5. Define principle-agent problem, adverse selection, and moral hazard and give examples for each...
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