According to the Keynesian IS—LM model, what is the effect of each of the following on output, the real interest rate, employment, and the price level? Distinguish between the short run and the long run
(a) Expected inflation rises.
(b) Wealth increases.
(c) Labor supply decreases due to a change in demographics.
(d) The future marginal product of capital decreases.
(a) Short run: Y and N increase; r falls; P is unchanged. Long run: P rises; Y, r, and N are unchanged.
(b) Short run: Y, r, and N increase; P is unchanged. Long run: r and P rise; Y and N are unchanged.
(c) Nothing happens to any of the variables.
(d) Short run: Y, r, and N fall; P is unchanged. Long run: r and P fall; Y and N are unchanged.
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Refer to the table above. If the factory plans to hire a seventh worker whose marginal product is 15 pairs, the total output after he is hired will be:
A) 15 pairs. B) 105 pairs. C) 280 pairs. D) 295 pairs.
If the tea harvest is bad in a particular year, the supply of tea will
a. decrease, its price will decrease, and the quantity demanded of coffee will increase b. decrease, its price will increase, and the quantity demanded of coffee will increase c. decrease, its price will increase, and the quantity demanded of coffee will decrease d. decrease, its price will decrease, and the quantity demanded of coffee will decrease e. increase, its price will increase, and the quantity demanded of coffee will increase
An economy in which output has decreased and prices have increased would suggest that there has been a:
A. negative demand side shock. B. negative supply side shock. C. positive demand side shock. D. positive supply side shock.
The proposed monetary rule that would specify how the Fed should respond to changes in GDP and inflation rates is called the:
A. Keynesian rule. B. Friedman rule. C. Taylor rule. D. Lucas rule.