Explain in detail what effect an increase in government spending will have on: (1 ) the LM curve; and (2 ) the IS curve
What will be an ideal response?
An increase in government spending will cause an increase in demand and the equilibrium level of output in the goods market will be higher. This is reflected in a rightward shift in the IS curve. Goods market events such as this will not cause a shift in the LM curve (only a movement along it).
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When the supply of a good decreases, there will be a(n):
A. increase in the quantity demanded. B. decrease in buyers' reservation prices for the good. C. decrease in the quantity demanded. D. decrease in demand.
Frank Murphy is considering how many snowmobiles to purchase for his snowmobile rental business. Below are his estimates of the number of snowmobile rentals per year, depending on the number of snowmobiles available.Number ofSnowmobilesYearlyrentals1902170324043005350After paying all non-interest expenses, expenses Frank expects to net $10 per rental. Each snowmobile costs $15,000. How many snowmobiles should Frank purchase if the real interest rate is 4.5%?
A. 4. B. 0. C. 2. D. 1.
Stockholders of ComfortAir Corporation, an air conditioner and furnace manufacturer, are concerned that the companies executives may take on greater risks than stockholders desire. This example illustrates
a. moral hazard and market risk. b. moral hazard and firm specific risk. c. adverse selection and market risk. d. adverse selection and firm specific risk.
Carbon dioxide emissions are thought to contribute to global warming, and there is a concern that changes in climate will be costly. Emitting carbon dioxide is an example of:
A. an effluent fee. B. a public good. C. an adverse selection problem. D. a negative externality.