Question

Explain very briefly if the following statements are true or false. Mathematical or graphic treatment will be appreciated wherever possible or necessary.

5. In Keynes’ model the labor market clears at such a real wage rate at which both households and firms maximize their utility and profit respectively.

6. In the classical model, the quantity theory of money holds at all times postulating that real money balances are demanded in proportion to real income. Therefore, we can express this as follows: .

7. In the classical model, aggregate supply conditions uniquely fix the level of output and employment which imply that both monetary policy and fiscal policy changes in money supply and government expenditures respectively do not have real effects.

8. A rise in the propensity to consume, implying an increase in the multiplier, rotates the IS curve anti-clockwise and makes it flatter.

9. A fall in the interest-sensitivity of investment function rotates the IS curve anti-clockwise and make it flatter.

10. A rise in the interest sensitivity of the demand for money has no effect on the intercept of the LM curve with the y-axis; it shifts the intercept with the vertical axis upward, rotating it clockwise direction about the horizontal intercept and making it flatter.

11. Given nominal money supply, a rise in the price level shifts the LM curve leftward with no change in the slope.

12. Aggregate demand in the classical model is determined by consumption demand, investment demand and excess of real money balances over the full employment level of output. This may be represented by the following equation:

Answer #1

Answer 5.) True.

Answer 6.) True. The price level (and the nominal wage rate) depends on the level of the money supply. The rate of inflation depends on the rate of growth of the money supply.

[Since the equation was not given in the question, this answer is only an assumption.]

Answer 7-12.) PFA .

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Explain very briefly if the following statements are true or
false. Mathematical or graphic treatment will be appreciated
wherever possible or necessary.
While in the classical model with flexible wages and prices both
output and employment are determined in the goods market by the
demand for and supply of goods, in Keynes’ model with fixed money
wages they are not.
In Keynes’ model the important role of the interest rate is to
bring the real demand in line with supply...

1- In Keynes’s underemployment model with fixed money wages, if
there is an exogenous fall in investment, the economy will settle
at a lower price level leading to
a- a shift in the LM curve to the right and real wage to
rise.
b- a shift in the LM curve to the left and real wage to
fall.
c- a shift in the LM curve to the left and real wage to
rise.
d- a shift in the LM curve...

Briefly explain whether the following statement is true
or false.
"The ‘paradox of thrift’ is the argument that
an increase in desired saving shifts the LM curve to the left as
individuals increase their demand for money, thus lowering real
GDP."
Please answer elaborately with proper reasoning, graphs and
equations. Also include a policy example.

8.
According to the Classical Dichotomy, a country with a
hyper-inflation due to excessive money supply growth should
have:
nominal wage falling
real wage falling
real wage rising
nominal wage rising
9.
According to the Quantity Theory of Money and the Fisher
equation, a rise in money supply (for a given level of GDP and
velocity) should raise the:
nominal interest rate and real interest rate
inflation rate, nominal interest rate, and real interest
rate
inflation rate and nominal interest...

ECO - 252 -- Macroeconomics
7. True/False statements. Simply state
if the statement is true or
false. No explanation required.
a. In the AD-AS Model,
the wealth effect refers to a decrease in the interest rate that in
turn increases consumption and investment.
b. Ceteris
Paribus, a decrease in the price level causes the interest
rate to decrease, which leads to a depreciation of the dollar in
the foreign-currency exchange.
c. The aggregate
demand curve slopes downward because it is...

1) Equilibrium output will rise and the equilibrium
interest rate will fall if :
A) government spending increases B) net exports increase. C)
there is an autonomous increase in money demand D) the Fed
increases the money supply
2) In the IS/LM model
A) the money supply is always fixed B) consumptions expenditures
are fixed C) the price level is fixed D) the level of real GDP is
fixed
3)Changes in monetary
policy shift the LM curve, while changes in...

1. In the short-run IS-LM model with income taxation, taxes are
given by ?=? +??. Suppose that MPC = 0.75 and the marginal tax rate
?=0.2. Then, when ? decreases by 1000, then for any given interest
rate, the IS curve shifts:
Select one:
a. to the left by 1000.
b. to the right by 3000.
c. to the right by 3750
d. to the right by 1875.
2.
Suppose that the adult population in an economy is 28 million,...

The belief by most economists that real and nominal variables
are essentially determined separately in the long run is
characteristic of the ________ model.
A.Keynesian
B. aggregate supply
C. classical
D. aggregate demand
Suppose the economy is in long-run equilibrium. Senator A
succeeds in getting taxes lowered. At the same time, Senator B
succeeds in getting major restrictions on logging enacted. In the
short run
A.the price level will rise, and real GDP might rise, fall, or
stay the same....

An increase in the price level, other things equal, will shift
the _____.
consumption, investment, and net exports schedules of the
aggregate expenditures model downward
consumption, investment, and net exports schedules of the
aggregate expenditures model upward
consumption and investment schedules of the aggregate
expenditures model upward, but the net exports schedule
downward
consumption and net exports schedules of the aggregate
expenditures model upward, but the investment schedule
downward
The foreign purchases, interest rate, and real-balances effects
explain why the...

Suppose desired consumption and desired investment are
?? = 300 + 0.75(? − ?) − 300?
T = 100 + 0.2Y
?? = 200 − 200?
G is the level of government purchases and G=600
Money demand is
?? ?
= 0.5? − 500(? + ??)
where the expected rate of inflation, ??, is 0.05. The nominal
supply of money M = 133,200.
Suppose the full employment output is 2500 and the price level in
the short run is 120....

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