1a. Using the Keynesian-cross model, explain what happens to output following a decrease in the interest...

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)

Expert Solution

Rahul Sunny answered 2 years ago

Using the Keynesian-cross model, explain what happens to output following a decrease in the interest rate?

1A.Using the Keynesian-cross model, explain what happens to output following a decrease in the interest rate?...

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.

1a. Derive government spending and tax multiplier in the Keynesian-cross model using calculus 1b. Consider the...

1a. Derive government spending and tax multiplier in the Keynesian-cross model using calculus 1b. Consider the model of Keynesian cross with fixed planned investment expenditure, government spending and taxes. Assume that consumption function is given by C=a+mpc*(Y-T), where the parameter a >0 is called autonomous consumption, and the marginal propensity to consume satisfies 0< mpc <1. Compute equilibrium output (income) as a function of parameters (a and mpc) and exogenous variables. How does equilibrium output depend on a? mpc? Government...

1a. Derive government spending and tax multiplier in the Keynesian-cross model using calculus 1b. Consider the...

1a. Derive government spending and tax multiplier in the Keynesian-cross model using calculus 1b. Consider the model of Keynesian cross with fixed planned investment expenditure, government spending and taxes. Assume that consumption function is given by C=a+mpc*(Y-T), where the parameter a >0 is called autonomous consumption, and the marginal propensity to consume satisfies 0< mpc <1. Compute equilibrium output (income) as a function of parameters (a and mpc) and exogenous variables. How does equilibrium output depend on a? mpc? Government...

What happens to interest rate, output, prices and wages; as government expenditures decrease within a general...

What happens to interest rate, output, prices and wages; as government expenditures decrease within a general equilibrium framework? Could you please draw related graphs to explain? Thank you!

In the Keynesian model, a decrease in government purchases affects output by 1. decreasing labor supply,...

In the Keynesian model, a decrease in government purchases affects output by 1. decreasing labor supply, because workers feel effectively poorer. 2. decreasing saving to pay for future taxes, lowering the real interest rate and shifting the IS curve to the left. 3. decreasing the real interest rate due to crowding out, reducing aggregate demand. 4.decreasing aggregate demand as national saving declines.

In the expenditure–output or Keynesian cross model, the equilibrium occurs where the aggregate expenditure line (AE...

In the expenditure–output or Keynesian cross model, the equilibrium occurs where the aggregate expenditure line (AE line) crosses the 45° line. Given algebraic equations for two lines, the point where they cross can be calculated easily. Imagine an economy with the following characteristics. Y = Real GDP or national income C = Consumption = 50 + 0.8Y I = Investment = 200 G = Government spending = 100 Calculate the equilibrium level of income (Y) Suppose G increases to 125...

Under the New Keynesian model, what happens to inflation and unemployment rate when nominal interest rate...

Under the New Keynesian model, what happens to inflation and unemployment rate when nominal interest rate increases?

For each of the following changes, what happens to the real interest rate and output in...

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.

What happens in the Keynesian model if households decide to be thriftier that is spend less...

What happens in the Keynesian model if households decide to be thriftier that is spend less and save more? Do the following multistep exercise to find out.

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1a. Using the Keynesian-cross model, explain what happens to output following a decrease in the interest...

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Using the Keynesian-cross model, explain what happens to output following a decrease in the interest rate?

1A.Using the Keynesian-cross model, explain what happens to output following a decrease in the interest rate?...

1a. Derive government spending and tax multiplier in the Keynesian-cross model using calculus 1b. Consider the...

1a. Derive government spending and tax multiplier in the Keynesian-cross model using calculus 1b. Consider the...

What happens to interest rate, output, prices and wages; as government expenditures decrease within a general...

In the Keynesian model, a decrease in government purchases affects output by 1. decreasing labor supply,...

In the expenditure–output or Keynesian cross model, the equilibrium occurs where the aggregate expenditure line (AE...

Under the New Keynesian model, what happens to inflation and unemployment rate when nominal interest rate...

For each of the following changes, what happens to the real interest rate and output in...

What happens in the Keynesian model if households decide to be thriftier that is spend less...