5. The "interest rate effect" can be described as an increase in the price level that raises theinterest rate and chokes offA) government spending.B) government spending and unplanned investment.C) investment and consumption spending.D) net exports.6. The international trade effect states thatA) an increase in the price level will raise net exports.B) an increase in the price level will lower net exports.C) an increase in the price level will raise exports.D) an increase in the price level will lower imports.

6.A an increase in the price level will raise net exports

Answered: 5. The "interest rate effect" can be…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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12
In the graph you've just explored, by how much does the quantity of money demanded change if the interest rate rises from 5 percent to 6 percent? A. $9 trillion B. $1 trillion C. $10 trillion
3. Explain the wealth effect or the interest rate effect of why the aggregate demand (AD) curve is downward sloping.
15. Consider the economy of Farland. C = 200 + 0.75(Y – T) I = 200 – 25r M = Y – 100r M = 1000; P = 2 G = 100; T = 100 d P a. Find equilibrium interest rate and the equilibrium level of income Y b. With the initial values for monetary and fiscal policy, suppose that the price level rises from 2 to 4. What happens? What are the new equilibrium iaterest rate and level of income? c. Derive and graph an equation for the aggregate demand curve. What happens to this aggregate demand curve if government increases its purchaşes or National Bank provides more money supply?
19 - How does the increase in total expenditures affect the equilibrium income level?A) remains constantB) IncreasesC) first increase and then decreaseD) DecreasesE) Decrease first, then increase.
5 Which of the following is not a reason for the increase in aggregate demand? a. Decrease in imports b. Increase in government expenditure c. Increase in consumption d. None of the options Clear my choice
29. What is the effect of an increase in investment spending on the overall price level in the income-expenditure model?
24
7. Supply-side effects Consider a fictional economy that is operating at its long-run equilibrium. The following graph shows the aggregate demand curve (AD) and short-run aggregate supply curve (SRAS) for the economy. The long-run aggregate supply curve (LRAS) is represented by a vertical line at $6 trillion. The economy is initially producing at potential output. Suppose that fiscal authorities decide to decrease marginal tax rates. Assume that this change in marginal tax rates is perceived as a long-term change. Shift the appropriate curves to illustrate the supply-side view of the fiscal policy effect on output and the price level. (? 120 LRAS SRAS 100 AD 80 SRAS LRAS 40 AD 20 2 4 6 8 10 12 QUANTITY OF OUTPUT (Trillions of dollars) PRICE LEVEL
5
6- How does the aggregate demand curve change if aggregate demand increases in an economy? a) shifts left B) shifts to the right NS) slides down D) constant TO) slides up
4. Use of discretionary policy to stabilize the economy The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (SRAS), and long-run aggregate supply curve (LRAS) for the U.S. economy in February 2020. Suppose the government decides to intervene to bring the economy back to its potential output. In this case, the government would engage in policy. Depending on which curve is affected by the government policy, shift either the SRAS curve or the AD curve to reflect the change that would successfully restore potential output. 150 SRAS AD 130 110 SRAS AD 70 LRAS 50 20 22 24 26 28 30 OUTPUT (Trillions of dollars) PRICE LEVEL

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5. The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off A) government spending