3. What is the effect of an exogenous increase in P in the Keynesian model? What...

3. What is the effect of an exogenous increase in P in the Keynesian model? What is the effect of an exogenous increase in GDP in the Classical model?

Expert Solution

Rahul Sunny answered 7 months ago

According to standard theory (no extremes), (a) predict the effect of an exogenous increase in the...

According to standard theory (no extremes), (a) predict the effect of an exogenous increase in the wage rate on consumption, unemployment and interest rates. Explain. (b) Predict the effect of a tax reduction on the same three variables as in (a).

Based on keynesian model, analyze effect of increase in money supply on level of real income,...

Based on keynesian model, analyze effect of increase in money supply on level of real income, price level, money wage and interest. Please analyze with diagram

In the Keynesian Cross model an increase in government spending leads to an increase in income...

In the Keynesian Cross model an increase in government spending leads to an increase in income that is a multiple of the increase in spending. Explain why. Why is the increase in equilibrium income following a change in G less than what the Keynesian Cross model predicts in the full IS-LM model? (Hint for this last part: what is the horizontal shift in IS following a change in G?)

Suppose there is an exogenous increase in investment. Use the large open economy model to answer...

Suppose there is an exogenous increase in investment. Use the large open economy model to answer the following: 1. Will the domestic real interest rate change? Explain. 2. Does this shock affect net capital outflows? Explain why or why not. 3. What happens to the value of the domestic currency in the foreign exchange market? Why does the value of the domestic currency change? 4. Will net exports change? Why or why not? 5. Will domestic investment change? Why or...

Suppose there is an exogenous increase in taxes,. Use the large open economy model to answer...

Suppose there is an exogenous increase in taxes,. Use the large open economy model to answer the following: 1. Does this shock affect national saving? Explain. 2. Does this shock affect net capital outflows? Explain why or why not. 3. What happens to the value of the domestic currency in the foreign exchange market? Why does the value of the domestic currency change? 4. Will net exports change? Why or why not? 5. Will the domestic real interest rate change?...

Based on the Keynesian model, analyze the effects of an increase in the money supply on...

Based on the Keynesian model, analyze the effects of an increase in the money supply on the level of real income, the price level, the money wage and the interest rates. 10 markhs

Use the Keynesian IS-LM Model to analyze the effect of the following on interest rates, employment...

Use the Keynesian IS-LM Model to analyze the effect of the following on interest rates, employment and price level. Differentiate between the effects in the SR and LR : 1.An increase in consumer confidence, as consumers expect their incomes to be higher in the future 2.Financial deregulations allow banks to pay a higher interest rate on checking accounts

Consider an increase in the birth rate. Take this increase to be exogenous. Consider the impact...

Consider an increase in the birth rate. Take this increase to be exogenous. Consider the impact in the Malthusian model. What is the initial impact on per capita income? What is the initial impact on the growth rate in per capita income? Explain the effects on per capita income and the growth rate in per capita income in the long run. Support your answers graphically.

1.In the Keynesian Cross model, why does a $1 increase in government purchases increase national income...

1.In the Keynesian Cross model, why does a $1 increase in government purchases increase national income by more than $1? How does this result compare with the effect of a $1 increase in government expenditures in the long-run model of loanable funds? Why do the results differ? 2.The government increases government purchases and taxes by the same amount. Consider the following statement: “Since the entire increase in government expenditures is funded through new taxes, there is no crowding out of...

What is the major difference between the classical model and the Keynesian model?

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