MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
10th Edition
ISBN: 9781319467203
Author: Mankiw
Publisher: MAC HIGHER
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 5PA
(a)
To determine
LM curve is horizontal when the investment does not depend on the rate of interest.
(b)
To determine
IS curve is vertical when the investment does not depend on the rate of interest.
(c)
To determine
IS curve is horizontal when the money
(d)
To determine
LM curve is vertical when the investment does not depend on the rate of interest.
(e)
To determine
LM curve is horizontal when money demand does not depend on the income.
(f)
To determine
LM curve is horizontal when money demand is extremely sensitive to the interest rate.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Q49
Suppose the economy is operating on the LM curve but not on the IS curve. Given this information, we know that________.
Select one:
a. the money, bond and goods markets are all in equilibrium.
b. the money market and bond markets are in equilibrium and the goods market is not in equilibrium.
c. neither the money, bond, nor goods markets are in equilibrium.
d. the money market and goods market are in equilibrium and the bond market is not in equilibrium.
1. Find the value of autonomous spending.
2. What is the slope of the LM curve?
3. Find the value of the real money supply.
4. Show the goods market equilibrium.
5. Show the money market equilibrium.
C = 1500+ 0.40*(Y-T)
I = 600-60*i
G = 200
T = 2000
M = 2100
P = 5
L = 0.75Y-25*i
Q8
Which of the following statements is consistent with a given (i.e., fixed) IS curve?
Select one:
a. A reduction in the interest rate causes money demand to decrease.
b. A reduction in the interest rate causes investment spending to increase.
c. An increase in government spending causes an increase in demand for goods.
d. A reduction in the interest rate causes an increase in the money supply.
Chapter 12 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
Knowledge Booster
Similar questions
- Q32 Which of the following will occur if there is an increase in taxes? Select one: a. The LM curve shifts and the economy moves along the IS curve. b. Neither the IS nor the LM curve shifts. c. The IS curve shifts and the economy moves along the LM curve. d. Output will change causing a change in money demand and a shift of the LM curve.arrow_forwardOther things being equal, a decrease in the money supply will: A. decrease both investment spending and aggregate demand. B. decrease investment spending and increase aggregate demand. C. increase both consumption spending and aggregate demand. D. increase both investment spending and aggregate demand. E. increase investment spending and decrease aggregate demandarrow_forwardQuestion 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.arrow_forward
- What is the impact of monetary and fiscal policy if (a) money demand does not depend on income, LM curve is horizontal; and (b) If money demand is extremely sensitive to interest rate, LM curve is horizontal.arrow_forwarda. Using the attached image as an example, graphically derive the LM curve, using instead a graph that relates money demand to income. Please put the stock of money on the vertical axis and income on the horizontal axis and set this diagram above the LM diagram. b. Please show how the IS curve and the LM curve can be shifted to get an increase in output without a change in interest rates. What kind of mixed monetary and fiscal policy is needed to do this? Will a reduction in interest rates, while holding output constant, do this?arrow_forwardaarrow_forward
- Explain in words how investment multiplier and the interest sensitivity of aggregate demand affect the slope of the IS curve. Furthermore, Explain in words how and why the income and interest sensitivities of the demand for real balances affect the slope of the LM curve. According to the IS–LM model, what happens to the interest rate, income, consumption, and investment under the following circumstances?a. The central bank increases the money supply.b. The government increases government purchases.c. The government increases taxes.arrow_forwardIn the market for money, use a graph to explain the effect of a decrease in the price level on the equilibrium interest rate. 1.) Using the line drawing tool, draw either a new demand or supply curve. Properly label your curve. 2.) Using the point drawing tool, plot the new equilibrium point. Carefully follow the instructions above, and only draw the required objects. How does the change in the interest rate affect planned investment spending, consumption spending, and net exports? The change in the interest rate demonstrated above planned investment spending, consumption spending, and 19 首忌 之 eds net exports. LIID Interest rate 11 MP Real money balances M 下一张arrow_forwardAs interest rates rise, the effect on aggregate demand is to Select one: a. increase firm borrowing and investment spending. b. increase only firm borrowing. c. reduce consumer borrowing and consumption spending. d. increase consumer borrowing and saving.arrow_forward
- Suppose the economy is in equilibrium, with real interest rates equal to 4% and National Savings equal to $1,600 billion. Furthermore, suppose consumption depends on interest rates. a. Using the classical model, explain, and graphically illustrate how an increase in government spending by $400 billion will affect aggregate demand and aggregate output. b. Using the classical “equation of exchange”, explain how this increase in government spending will affect the inflation rate.arrow_forwardGraphically show and link the long-run equilibrium in goods market and money market, using MD-MS diagram, Investment Expenditure diagram, AE-Y diagram, and AD-AS diagram. a. Clearly explain (using chain reactions) and show the short-run effect of an increase in money supply on the equilibrium of this economy. Make sure you clearly show the impact in all diagrams. b. In the same way, explain and show the long-run effect of the increase in money supply noting that your answer to this question picks up where you finished in part (a) and describes the adjustment process according to the output gap. c. Clearly describe based on your graphs, the long-term neutrality of money. d. Is the composition of Y* any different after the new long-run equilibrium establishes?arrow_forwardAccording to the IS-LM model, a. what happens to the interest rate, income, and investment when government spending decreases? b. how the Fed should adjust the money supply to keep income at its initial level. What happens to the interest rate as a result? c. If the Fed's goal is instead to hold the interest rate constant, explain in words how the Fed should adjust the money supply when government spending decreases. What happens to income as a result? d. What is the Fed's dilemma?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Macroeconomics: Principles and Policy (MindTap Co...EconomicsISBN:9781305280601Author:William J. Baumol, Alan S. BlinderPublisher:Cengage Learning
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Macroeconomics: Principles and Policy (MindTap Co...
Economics
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:Cengage Learning
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax