Use the IS-LM model to answer this question. Suppose there is a simultaneous increase in government spending and increase in the money supply. Explain what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know with certainty what effect this policy mix will have on investment? Explain
What will be an ideal response?
In this case, the LM curve shifts down and the IS curve shifts to the right. The output will clearly be higher. The effects on interest rate depend on the relative magnitude of the two policies. The effects on I are also ambiguous. If interest rate falls, I will be higher. However, it is possible that interest rate will rise here which creates the ambiguity.
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If nominal GDP is less than real GDP, then the GDP deflator will be greater than 100
Indicate whether the statement is true or false
One could argue that price competition among oligopolistic firms is highly likely to cause the revenues of individual firms to decline, while competition on the basis of product differentiation could cause demand, and total revenues, of individual
firms to increase. Indicate whether the statement is true or false
The consumer price index is calculated by the:
A. National Bureau of Economic Research. B. Congressional Budget Office. C. Social Security Office. D. Bureau of Labor Statistics.
"Hawks" are economists who argue that:
a) the goal of full employment should take priority over the goal of low inflation. b) greater central bank action is needed in times of economic hardship. c) too much monetary policy can have inflationary effects. d) the Federal Reserve should be abolished.