Using the ISLM model, explain the effects of a monetary expansion combined with a fiscal contraction. How do the equilibrium level of output and interest rate change?
What will be an ideal response?
The monetary expansion shifts the LM curve to the right which by itself would cause the interest rate to decrease and aggregate output to increase. The fiscal contraction shifts the IS curve to the left which by itself would cause the interest rate to decrease and aggregate output to decrease. Therefore, the equilibrium interest rate unambiguously falls, while the effect on output is indeterminate.
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In the market for a particular pair of shoes, Jena is willing to pay $75 for a pair while Jane is willing to pay $85 for a pair. The actual price that each has to pay for a pair of shoes is $65. What is the combined amount of consumer surplus for Jena and Jane?
A. $215. B. $130. C. $10. D. $30.
The wealth effect and the interest rate effect are changes in the price level that:
a. bring about a movement along the aggregate demand curve. b. lead to a shift of the demand curve for a particular good. c. result in a shift of the aggregate supply curve. d. help explain the vertical shape of the long-run aggregate supply curve. e. cause a movement along the aggregate supply curve.
In the U.S. over the past century, increases in labor
a. supply have outpaced increases in labor demand, causing the average wage rate to fall b. supply have outpaced increases in labor demand, causing the average wage rate to rise c. demand have outpaced increases in labor supply, causing the average wage rate to fall d. demand have outpaced increases in labor supply, causing the average wage rate to rise e. demand have occurred at the same pace as increases in labor supply, so the average wage rate has remained unchanged
If a 20 percent decrease in the price of chicken results in a 10 percent increase in the quantity demanded, the price elasticity of demand has a value of
a. 0.5 b. 2 c. 1 d. 0.1 e. none of these