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, 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 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 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 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 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
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 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 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...