Question 2 Are the following statements true or false? Explain the false statements. a. The main determinants of investment are the level of sales and the interest rate. b. The IS curve is downward sloping because goods market equilibrium implies that an increase in taxes leads to a lower level of output. c. If government spending and taxes increase by the same amount, the IS curve does not shift. d. With a horizontal LM curve, the amount of money in the economy is constant along the LM curve.

Question 2 Are the following statements true or false? Explain the false statements. a. The main determinants of investment are the level of sales and the interest rate. b. The IS curve is downward sloping because goods market equilibrium implies that an increase in taxes leads to a lower level of output. c. If government spending and taxes increase by the same amount, the IS curve does not shift. d. With a horizontal LM curve, the amount of money in the economy is constant along the LM curve.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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34. The difference between the two sets of graphs (Figure 1 and Figure 2) is that a) Figure 1 depicts changes in price level only, while Figure 2 shows changes in the rate of inflation. b) Figure 1 shows changes in autonomous spending, while Figure 2 shows changes in supply. c) Figure 1 depicts changes in price level only, while Figure 2 shows changes in autonomous spending (changes independent of price). d) Figure 1 shows changes in the mpc, while Figure 2 shows changes in autonomous spending.
TOPIC: Classical economists and interest rate flexibility
Consider a tax cut which affects not only consumer disposable income, but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving. In the long run we would expect this tax cut to A decrease the level of real GDP. B decrease the price level. C increase both the price level and the level of real GDP. D decrease the price level and increase the level of real GDP.
1.The spending multiplier effect becomes bigger if a. the MPC becomes bigger and the MPM becomes smaller b. both the MPC and the MPM become bigger c. both the MPC and the MPM become smaller d. the MPC becomes smaller and the MPM becomes bigger 2. "The U.S. Department of Commerce has estimated that if U.S. manufacturers use metric measures, their increased ability to compete on world markets should increase exports by about $600 million and thus benefit the U.S. economy by between $1.2 billion and $1.8 billion." These numbers suggest that a. exports have a much smaller multiplier impact than other kinds of spending. b. the export spending multiplier is between 2 and 3. c. it takes between $1.2 and $1.8 billion increase in income to generate a $600 million increase in exports. d. imports should increase by between $1.2 and $1.8 billion. 3. The functions of the Federal Reserve System include all of the following, except: a.controlling the money supply b. promoting the stability of the…
Assume a closed economy with no government and a fixed aggregate price level and constant interest rate. Furthermore, assume that the country's consumption function is C = 200 + 0.75YD, where YD is disposable income, and C is consumption, and that planned investment is $75. What will happen if aggregate wealth decreases by $100, all else equal? a. The aggregate spending line will shift downward. b. The income–expenditure equilibrium real GDP will increase by more than $100. c. There will be no multiplier effect on real GDP, since there is a drop in aggregate wealth. d. Planned investment will increase.
Which of the following is true? Question 37Answer a. The loanable funds model is essentially a model that determines the short-term real rate of interest. b. The money market model is essentially a model that determines the short-term real rate of interest. c. The money market model is essentially a model that determines the short-term nominal rate of interest. d. The loanable funds model is essentially a model that determines the long-term nominal rate of interest.
b
Which of the following correctly describes how a decrease in the price level affects consumption spending? Select one: a. A decrease in the price level raises real wealth, which causes consumption to increase. b. A decrease in the price level decreases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase. c. A decrease in the price level increases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase. d. A decrease in the price level lowers real wealth, which causes consumption to decrease.
1) Assume that Canadian government taxes away $0.15 of each dollar of new income, that 35% of the remaining $0.85 of disposable income is spent on imports, and that 2% of disposable income is saved. Enter your responses below rounded to 2 decimal places. a. The marginal propensity to withdraw is . b. From each new dollar of income $ is spent on domestic consumption items.c. The value of the Canadian spending multiplier is . 2) In each case below a particular fiscal policy affects an economy's AD curve via the spending multiplier. Calculate the spending multiplier and find the direction and size of the shift in the AD curve. Enter your responses for the spending multiplier rounded to 2 decimal places, and size of the shift of the AD curve rounded to 1 decimal place. Do not put minus signs in your answers. a. If government purchases increase by $3 billion in an economy with an MPW of 0.65 then the spending multiplier is and the AD curve finally shifts to the by $…
if the government cuts taxes in period 1 and cuts government spending in period 2 - this will increase the disposable income of the consumers - won't this increase consumption for consumers having an ambiguous effect on private saving. this is because if consumption is a normal good - increasing the income - positive income effect. My question is for some reason if consumer' disposable income increases - doesnn't this mean consumption must increase - whether it increases more/ enough to neutralise the tax cut effect is debatable and situation dependent - but surely there is an ambiguous effect on private saving for this reason
36. When a person receives extra income above their regular income, they have an option to save or spend that additional income. The portion of the extra income that is spent can be represented in a figure called: The Marginal Propensity to Consume Savings and Loan Theory The Marginal Propensity to Save The Piggy Bank Theory 37. Economics studies how people use scarce resources to make choices. Those choices can be influenced by: Consumers Incentives The government Taxes 38. What is a problem with nominal GDP when compared to real GDP? it represents past prices and is therefore unreliable it always grossly overstates the output of a nation It can represent deceptive outputs of a nation it has no problems or disadvantages 39. What is a fiscal cliff? A simultaneous increase in tax rates and cuts in government spending A simultaneous decrease in tax rates and cuts in government spending A simultaneous increase in…