Question

Question 1

By relying on the IS LM Model explain what will be the effect of a tax cut policy on the equilibrium level of income. Explain in detail the different steps, how does this policy impact the investment?

Question 2

Keynesian economics assume that prices are sticky (they do not change) in the short run. It is an assumption shared by classical economics. Explain briefly what are the characteristics of classical economists and according to them what drives the GPD.

Question 3

Suppose that economy of Portugal is characterized by the following

C = 200 + 0.5 (Y - T) Represents the consumption function

I = 600 – 30 r represents the investment function

G = 300 represents the public spending

T = 300 represents the level of taxation

(m/p)d = y - 40 r represents the money demand function

(m/p)s = 1500 r represents the real money supply

d Y represents the global output

Find the IS curve the LM curve and deduce the equilibrium level of interest rate equilibrium level of income.

The government increases the money supply by 100. How does it affect the equilibrium level of income? Justify your answer. Calculate the new equilibrium …. Equilibrium level of income

Answer 1