Show what happens to interest rate, output, prices and wages
as
i. Government spending decreases within a general equilibrium
framework
ii. Money Supply decreases within a general equilibrium
framework
iii. Autonomous consumption (or autonomous investment) decreases
within a general equilibrium framework
1A.Using the Keynesian-cross model, explain what happens to
output following a decrease in the interest rate?
1B. Using the IS-LM model, show and explain how a decrease in
taxes affects the interest rate and output.
using the IS-LM and the AD-LRAS-SRAS figures what happens to
real interest rate, output and prices if there is a temporary
increase in government purchases for military purposes. Will it
matter whether the temporary increase in military spending is
funded by taxes or by borrowing?
For each of the following changes, what happens to the real
interest rate and output in the very short run, before the price
level has adjusted to restore general equilibrium? (a) Wealth
rises. (b) Money supply rises. (c) The future marginal productivity
of capital increases. (d) Expected inflation declines. (e) Future
income declines.
1a. Using the Keynesian-cross model, explain what happens to
output following a decrease in the interest rate? (5pts)
b. Using the IS-LM model, show and explain how a decrease in
taxes affects the interest rate and output. (5pts)
Examine the effects of a decrease in foreign output and foreign
interest rate underflexible exchange rate regime when the goal of
the central bank is to achieve output stability (Hint: Use
Mundell-Fleming model) What happens to the components of
demand?