Describe how the real interest rate changes in a Keynesian model if a shock shifts the IS curve down and to the right and the Fed changes its policy to keep output unchanged.
What will be an ideal response?
If the Fed is going to keep output unchanged, then it will tighten monetary policy, reducing the money supply to offset the shift of the IS curve. The tighter monetary policy will mean that the real interest rate is higher. The LM curve shifts up and to the left, or the LR curve shifts up.
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Suppose you are a famous international economic advisor. You have been asked to asses the possibilities for growth in an African country. It is a country abundant in labor and some natural resources. The capital-to-labor ratio is low
It has a free market economy. You have found that this country does not have a very strong and healthy banking system, however the political system is stable and the government does a good job protecting property rights. Assess this country's prospects for growth. Recommend two things that would enhance the country's growth.
Since the Great Depression, business fluctuations have become more severe and longer in duration
a. True b. False Indicate whether the statement is true or false
Everything else constant, the international trade effect indicates that aggregate expenditures in the domestic economy fall when:
a. domestic prices fall relative to foreign prices. b. domestic interest rates fall relative to foreign interest rates. c. domestic prices rise relative to foreign prices. d. domestic purchasing power rises relative to foreign purchasing power. e. domestic interest rates rise relative to foreign interest rates.
The old-age dependency ratio is the ratio of the size of the 65 and older population to the size of the working-age population.
Answer the following statement true (T) or false (F)