A fiscal expansion (e.g. a tax cut) will result in an increase in income, an increase in money demand, and an increase in the equilibrium interest rate in financial markets. Explain what happens to the position of the LM curve as policy makers pursue expansionary fiscal policy
What will be an ideal response?
The fiscal expansion will cause an increase in output. However, changes in Y only cause movements along the LM curve. The effects of changes in Y on the interest rate are embedded in the shape of the LM curve.
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Travelers driving through Gotham City can use a freeway or the Cross Town Tollway to get through the city. The tollway charges $1.00 per car during the morning rush hour (6-9 AM) and the afternoon rush hour (4-7 PM), and the toll is $0
40 per car at all other times. The weekly demand for using the tollway during rush hour is Q1 = 800 - 200P1 where quantity demanded is measured in thousands of cars, and the weekly demand for the non-rush hour period is Q2 = 2000 - 1000P2. Gotham City's marginal cost of operating the tollway is MC = 0.02 + 0.001Q per car. a. What are the marginal revenue curves associated with the two demand curves? b. Has the city set the profit maximizing tolls for the Cross Town Tollway? If not, do the current tolls generate too much or too little traffic on the tollway?
This group is most likely to be harmed by inflation.
A. Debtors B. Persons on fixed incomes C. The young D. Foreigners
producer surplus
What will be an ideal response?
Many persons opposed to wealth redistribution maintain that taxing the “winners” of the economic game provides incentive to __________.
A. save more money instead of spending it B. Make even more money to replace the money taxed away C. avoid risk-taking and more wealth creation