(a) Using a basic Keynesian income determination model, describe the effects of the following changes, assuming that money demand is infinitely elastic: (i) an increase in government expenditure (ii) an increase in the marginal propensity to save (iii) a decrease in export demand

(a) Using a basic Keynesian income determination model, describe the effects of the following changes, assuming that money demand is infinitely elastic: (i) an increase in government expenditure (ii) an increase in the marginal propensity to save (iii) a decrease in export demand

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 2CQQ

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Question

(a) Using a basic Keynesian income determination model, describe the effects of the
following changes, assuming that money demand is infinitely elastic:
(i) an increase in government expenditure
(ii) an increase in the marginal propensity to save
(iii) a decrease in export demand
(iv) an increase in the marginal propensity to import
(v) a cut in the official rate of interest by the Monetary Policy Committee of the Bank
of England
Illustrate your answers with diagrams.

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