Let the IS curve for the U.S. be such that Ỹt =ā - b(Rt F). If the Fed increases the interest rate, then the effect would be captured as: The IS Curve Real interest rate, R IS Output, Y O A movement along the IS curve towards a lower Ỹ. An increase in ā, tilting the curve around (0,7). An increase in the IS multiplier. O An increase in ā, moving the curve up. Question 7 If the Ricardian Equivalence holds - Increasing government purchases wouldn't generate a positive demand shock (a=0), if it is financed by increasing either current taxes or future taxes. O Increasing government purchases would generate a positive demand shock (@ >0), if it is financed by increasing current taxes. O Increasing government purchases would generate a positive demand shock (LaTeX: \overline{a}>0), if it is financed by increasing future taxes. O Increasing government purchases would generate a negative demand shock ( ā<0), if it is financed by increasing future taxes. O Increasing government purchases would generate a negative demand shock ( ā<0), if it is financed by increasing current taxes.
Let the IS curve for the U.S. be such that Ỹt =ā - b(Rt F). If the Fed increases the interest rate, then the effect would be captured as: The IS Curve Real interest rate, R IS Output, Y O A movement along the IS curve towards a lower Ỹ. An increase in ā, tilting the curve around (0,7). An increase in the IS multiplier. O An increase in ā, moving the curve up. Question 7 If the Ricardian Equivalence holds - Increasing government purchases wouldn't generate a positive demand shock (a=0), if it is financed by increasing either current taxes or future taxes. O Increasing government purchases would generate a positive demand shock (@ >0), if it is financed by increasing current taxes. O Increasing government purchases would generate a positive demand shock (LaTeX: \overline{a}>0), if it is financed by increasing future taxes. O Increasing government purchases would generate a negative demand shock ( ā<0), if it is financed by increasing future taxes. O Increasing government purchases would generate a negative demand shock ( ā<0), if it is financed by increasing current taxes.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Let the IS curve for the U.S. be such that Ỹt = ā – b(Rt — ñ). If the
Fed increases the interest rate, then the effect would be captured as:
The IS Curve
Real interest rate, R
IS
0
Output, Y
O A movement along the IS curve towards a lower Ỹ.
O An increase in ā, tilting the curve around (0,7).
An increase in the IS multiplier.
O An increase in ā, moving the curve up.
Question 7
If the Ricardian Equivalence holds -
O Increasing government purchases wouldn't generate a positive demand shock
(a=0), if it is financed by increasing either current taxes or future taxes.
Increasing government purchases would generate a positive demand shock (a
>0), if it is financed by increasing current taxes.
O Increasing government purchases would generate a positive demand shock
(LaTeX: \overline{a}>0), if it is financed by increasing future taxes.
O Increasing government purchases would generate a negative demand shock (
ā<0), if it is financed by increasing future taxes.
Increasing government purchases would generate a negative demand shock (
ā<0), if it is financed by increasing current taxes.
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