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1.Write down the IS and the LM equation. Explain why the IS curve is downward sloping and the LM curve is upward sloping.

2.According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.8, and government expenditures and autonomous taxes are both decreased by 100. Calculate the change in income as a result of these changes.

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Paramjeet Chawla
Paramjeet ChawlaLv8
28 Sep 2019

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Related questions

In the economic of Zip, the marginal propensity to consume is 0.8. Government expenditures on goods and services are 50 billion, and taxes are 60 billion. Zip has no exports and no imports.

1. the government increases its expenditures on goods and servicesto 60 billion. calculate the final change in aggregate demand as aresult of this increase in government expenditures.

2. the government increases taxes to 70 billion. calculate thefinal chage in aggregate demand as a result of this increase intaxes.

3. the government simultaneously increases both its expenditures on goods and services and taxes by 10 billion. what is the net change in aggregate demand? why does aggregate demand increase?

10,A change in the price level​ ________ the AE curve and​ ________ the AD curve.
A.
​shifts; shifts
B.
has no effect​ on; results in a movement along
C.
results in a movement​ along; results in a movement along
D.
results in a movement​ along; shifts
E.
​shifts; results in a movement along

17,When the price level​ falls, the aggregate planned expenditure curve shifts​ ________, equilibrium expenditure​ ________ and there is a movement​ ________ along the aggregate demand curve.
A.
​upward; increases; upward
B.
​downward; decreases; downward
C.
​upward; decreases; downward
D.
​upward; increases; downward
E.
​downward; increases; upward

21,Which of the following increases the size of the expenditure​ multiplier?
A.
an increase in autonomous spending
B.
a decrease in the marginal propensity to consume
C.
a decrease in the marginal propensity to import
D.
an increase in the marginal income tax rate
E.
an increase in investment

23,If the quantity of real GDP demanded is greater than the quantity of real GDP​ supplied, then
A.
the price level falls and firms decrease production.
B.
aggregate demand changes to restore equilibrium.
C.
the economy must be producing at potential GDP.
D.
the price level falls to restore the macroeconomic equilibrium
E.
the price level rises and firms increase production.


24, ________ can trigger an expansion.
A.
Equality between aggregate expenditure and real GDP
B.
A decrease in induced expenditure
C.
A downward shift of the AE line
D.
An increase in autonomous expenditure
E.
A decrease in autonomous expenditure


1. In an economy with no foreign trade and a marginal propensity to consume of 0.8, which of the following will be true?

a. If taxes are increased by $100M, GDP will decrease by $500M.

b. If autonomous consumption increases by $50M, GDP will increase by $200M.

c. If both taxes and government spending increase by $100M, GDP will increase by $250M.

d. If taxes are decreased by $100M, GDP will increase by $400M.

e. If autonomous consumption decreases by $100M, GDP will decrease by $800M.

2. Looking at the circular flows model, how can the saving equals investment equation be derived?

a. By looking at flows into and out of goods markets

b. By looking at flows into and out of financial markets

c. By looking at flows into and out of households

d. By looking at flows into and out of firms

e. By looking at flows into and out of the government

3. What will be the short-run effect of a 10% increase in the money supply for an economy operating in the Keynesian portion of the aggregate supply curve?

a. Real GDP will increase by 10% if velocity doesn't change.

b. Real GDP and the price level will both increase by 5% if velocity doesn't change.

c. Real GDP won't change, but the price level will increase by 10% if velocity doesn't change.

d. Velocity will fall by 5%, the price level will increase by 5%, and real GDP won't change.

e. According to the quantity theory of money, velocity will fall by 10%, and nothing else will change

4. Which of the following will make monetary policy more effective in changing nominal GDP?

a. A fixed velocity of money

b. A flat investment demand curve

c. A high marginal propensity to save

d. A money demand curve that is very flat

e. An aggregate expenditure curve that is very flat

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