4. Why are fiscal policy multipliers smaller in magnitude in the variable price-fixed wage version of the Keynesian model than in the fixed-price IS- LM model? Why are these multipliers still smaller when we allow the money wage as well as the price level to be variable? 5. Return to the case considered in question 2, where investment is completely interest inelastic and the IS schedule is vertical. Analyze the effects of an increase in government spending in this case within the variable price- fixed wage version of the Keynesian model. Compare the effects with those in the fixed price version of the model. 6. Analyze the effects of a decline in the government expenditure within the Keynesian model where both the price level and money wage are assumed to be variable. Include in your answer the effects on the level of real income, the price level, and the money wage.

4. Why are fiscal policy multipliers smaller in magnitude in the variable price-fixed wage version of the Keynesian model than in the fixed-price IS- LM model? Why are these multipliers still smaller when we allow the money wage as well as the price level to be variable? 5. Return to the case considered in question 2, where investment is completely interest inelastic and the IS schedule is vertical. Analyze the effects of an increase in government spending in this case within the variable price- fixed wage version of the Keynesian model. Compare the effects with those in the fixed price version of the model. 6. Analyze the effects of a decline in the government expenditure within the Keynesian model where both the price level and money wage are assumed to be variable. Include in your answer the effects on the level of real income, the price level, and the money wage.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Explain all parts

4. Why are fiscal policy multipliers smaller in magnitude in
the variable price-fixed wage version of the Keynesian
model than in the fixed-price IS- LM model? Why are these
multipliers still smaller when we allow the money wage as
well as the price level to be variable?
5. Return to the case considered in question 2, where
investment is completely interest inelastic and the IS
schedule is vertical. Analyze the effects of an increase in
government spending in this case within the variable price-
fixed wage version of the Keynesian model. Compare the
effects with those in the fixed price version of the model.
6. Analyze the effects of a decline in the government
expenditure within the Keynesian model where both the
price level and money wage are assumed to be variable.
Include in your answer the effects on the level of real
income, the price level, and the money wage.

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