Question

Suppose Congress decides to reduce the budget deficit by cutting government spending. Use the Keynesian-cross model to illustrate graphically the impact of a reduction in government purchases on the equilibrium level of income. Be sure to label:

1) the axes;

2) the curves;

3) the initial equilibrium values;

4) the direction the curve shifts;

5) the terminal equilibrium values.

Answer #1

3. a. Suppose Congress decides to reduce the budget deficit by
cutting government spending. a. Use the Keynesian-cross model to
illustrate graphically the impact of a reduction in government
purchases on the equilibrium level of income. Be sure to label: i.
the axes; ii. the curves; iii. the initial equilibrium values; iv.
the direction the curve shifts; and v. the terminal equilibrium
values. b. Explain in words what happens to equilibrium income as a
result of the cut in government...

Use the Keynesian-cross model to illustrate graphically the
impact of: (1) anincrease in interest rate, (2) a reduction in
government spending on the equilibrium level of income. Be sure to
label the axes, the curves, the initial equilibrium values, the
direction the curve shifts, and the terminal equilibrium
values.
(3)Use the Keynesian-cross model to derive the IS curve.

Question 1
Suppose congress passes significant tax cuts on household income
but does not reduce spending, so that the government budget deficit
is larger. Use the Solow growth model of Chapter 8 to graphically
illustrate the impact of the tax cut on the steady-State level of
capital per worker and the steady state level of output per worker.
(Hint: in answering this question, think deeply how a larger
government budget deficit affect savings)
Make sure you label correctly the: a...

Taxes are reduced. Use Keynesian cross model to show graphically
the impact of lower taxes on the equilibrium level of income. Label
axes, curves, equilibrium, curve shifts.
Explain what happens to income equilibrium due to tax
reduction.

4. Suppose that the Fed conducted open market sales. Use the
IS-LM model to illustrate graphically the impact of the open market
sales on output and interest rates. Be sure to label: i. the axes;
ii. the curves; iii. the initial equilibrium values; iv. the
direction the curves shift; and v. the terminal equilibrium
values.

Suppose the government reduces taxes but holds government
spending constant, thus increasing the government budget
deficit.
1. What would be the major effect in the market for loanable
funds?
Increase
in demand for loanable funds (increased supply of
bonds)
Decrease
in demand for loanable funds (decreased supply of bonds)
Increase
in supply of loanable funds (increased demand for bonds)
Decrease
in supply of federal funds (decreased demand for bonds)
Why?
2. Graphically illustrate the effect on the equilibrium interest
rate...

Use the IS-LM model to graphically illustrate the impact of a
sudden decrease in demand for money (due to an increase in the use
of internet banking) on the output and interest rate in an economy
in the short run. Write down the impact on Y, C, U and
I.
Be sure to label: i. the axes; ii. the curves; iii. the initial
equilibrium levels; iv. the direction the curves shift; and v. the
new short-run equilibrium.

Use the IS-LM model to graphically illustrate the impact of a
housing crash on output and interest rate in an economy in the
short run. Be sure to label: i. the axes; ii. the curves; iii. the
initial equilibrium levels; iv. the direction the curves shift; and
v. the new short-run equilibrium. And Write down all changes from
the initial equilibrium (the changes in C, I, r, u and Y) to the
new short-run equilibrium.

(16 marks total) Using the IS-LM model discussed in chapter 10,
suppose you’re given the following information: • The consumption
function is given by C = 40 + 0.5 (Y − T). • The investment
function is given by I = 150 − 10r. • T = 120, and G = 170. (a) Find planned expenditure P E as a function of Y and r. (b)
For the case where r = 8, find the value of Y that
produces...

Suppose that laws are passed banning labor unions and that
resulting lower labor costs are passed along to consumers in the
form of lower prices. Use the aggregate demand–aggregate supply
model to illustrate graphically the impact in the short run and the
long run of this favorable supply shock. Be sure to label: i. the
axes; ii. the curves; iii. the initial equilibrium values; iv. the
direction the curves shift; v. the short-run equilibrium values;
and vi. the long-run equilibrium...

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