Exam 10: Measuring a Nations Income

In the Keynesian-cross model, fiscal policy has a multiplied effect on income because fiscal policy:

Two interpretations of the IS-LM model are that the model explains:

The IS-LM model takes as exogenous.

In explaining the 2003 bill to cut taxes, President Bush is quoted as saying, "When people have more money, they can spend it on goods and services." a. In the IS-LM model, will a tax cut change the money supply in the economy? Does a change in the money supply shift the IS or the LM curve? b. In the IS-LM model, does a tax cut shift the IS or the LM curve? c.Based on your answers in a and b, how can you reconcile the president's statement with economics? Can you suggest how his statement could be modified to be consistent with the IS-LM model?

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures For any given level of income.

When firms experience unplanned inventory accumulation, they typically:

In the Keynesian-cross model, actual expenditures equal:

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

a. The interest rate affects which variable in the market for goods and services versus the market for real money balances? b. The level of income affects which variable in the market for goods and services versus the market for real money balances?

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the of equilibrium income and there is unplanned inventory .

In the IS-LM model, which two variables are influenced by the interest rate?

Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption function is made smaller so that at every income level saving is greater. This will:

Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

When drawn on a graph with Y along the horizontal axis and PE along the vertical axis, the line showing planned expenditure rises to the:

John Maynard Keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on:

Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 200 + 2/3(Y - T). Planned investment is 300, as are government spending and taxes. a. If Y is 1,500, what is planned spending? What is inventory accumulation or decumulation? Should equilibrium Y be higher or lower than 1,500? b. What is equilibrium Y? (Hint: Substitute the values of equations for planned consumption, investment, and government spending into the equation Y = C + I + G and then solve for Y.) c. What are equilibrium consumption, private saving, public saving, and national saving? d. How much does equilibrium income decrease when G is reduced to 200? What is the multiplier for government spending?

a. Use the Keynesian-cross model to illustrate graphically the impact of an increase in the interest rate 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 increase in the interest rate.

In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of:

The IS-LM model simultaneously determines equilibrium in two markets. a. Which two markets? b. What two variables adjust to bring equilibrium in the markets?