QUESTION 7 "Suppose the parameters of the IS curve are a=0,b=3/4, and r= 2%. Suppose further that initially the real interest rate R=2%. Draw the diagram for the IS curve and recall "a" is a collection of terms (aC, aG, and so on). Suppose the government launches fiscal stimulus measures (e.g. a tax cut or an increase in government purchases). As a result, aG decreases by 2 percentage points, from 27% to 25%. Assuming the Fed keeps interest rates constant, what will happen to SRO?" Decrease by 1 percentage point Increase by 1 percentage point Decrease by 2 percentage points Increase by 2 percentage points Decrease by 1.5 percentage points Increase by 1.5 percentage points 00000 QUESTION 8 "We will consider a number of policy changes or shocks to the macroeconomy. Use the IS curve and diagram to analyze them and explain what will happen to short-run output (SRO). Unless stated otherwise, assume that the real interest rate remains unaffected. The Federal Reserve undertakes policy actions that have the effect of lowering the real interest rate below the marginal product of capital (MPK)." We move down along the IS curve. SRO increases We move up along the IS curve. SRO decreases The IS curve shifts to the right. SRO increases The IS curve shifts to the left. SRO falls We move down along the IS curve. SRO falls. We move up along the IS curve. SRO increases
QUESTION 7 "Suppose the parameters of the IS curve are a=0,b=3/4, and r= 2%. Suppose further that initially the real interest rate R=2%. Draw the diagram for the IS curve and recall "a" is a collection of terms (aC, aG, and so on). Suppose the government launches fiscal stimulus measures (e.g. a tax cut or an increase in government purchases). As a result, aG decreases by 2 percentage points, from 27% to 25%. Assuming the Fed keeps interest rates constant, what will happen to SRO?" Decrease by 1 percentage point Increase by 1 percentage point Decrease by 2 percentage points Increase by 2 percentage points Decrease by 1.5 percentage points Increase by 1.5 percentage points 00000 QUESTION 8 "We will consider a number of policy changes or shocks to the macroeconomy. Use the IS curve and diagram to analyze them and explain what will happen to short-run output (SRO). Unless stated otherwise, assume that the real interest rate remains unaffected. The Federal Reserve undertakes policy actions that have the effect of lowering the real interest rate below the marginal product of capital (MPK)." We move down along the IS curve. SRO increases We move up along the IS curve. SRO decreases The IS curve shifts to the right. SRO increases The IS curve shifts to the left. SRO falls We move down along the IS curve. SRO falls. We move up along the IS curve. SRO increases
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section9.A: The Simple Algebra Of Income Determination And The Multiplier
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Transcribed Image Text:QUESTION 7
"Suppose the parameters of the IS curve are a=0,b=3/4, and r = 2%. Suppose further that initially the real interest rate R=2%. Draw the
diagram for the IS curve and recall ""a" is a collection of terms (aC, aG, and so on). Suppose the government launches fiscal stimulus
measures (e.g. a tax cut or an increase in government purchases). As a result, aG decreases by 2 percentage points, from 27% to 25%.
Assuming the Fed keeps interest rates constant, what will happen to SRO?"
Decrease by 1 percentage point
Increase by 1 percentage point
Decrease by 2 percentage points
Increase by 2 percentage points
Decrease by 1.5 percentage points
Increase by 1.5 percentage points
QUESTION 8
"We will consider a number of policy changes or shocks to the macroeconomy. Use the IS curve and diagram to analyze them and
explain what will happen to short-run output (SRO). Unless stated otherwise, assume that the real interest rate remains unaffected. The
Federal Reserve undertakes policy actions that have the effect of lowering the real interest rate below the marginal product of capital
(MPK)."
We move down along the IS curve. SRO increases
We move up along the IS curve. SRO decreases
The IS curve shifts to the right. SRO increases
The IS curve shifts to the left. SRO falls
We move down along the IS curve. SRO falls
We move up along the IS curve. SRO increases
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