Exam 10: Explaining Aggregate Demand: the Is-Mp Model

Table 10.1 Consurmpticn C=\ 1.0+0.75 Irvestmernt =\ 1.9 Goverument purchases =\ 2 Net exports =-\ 0.5 Taxes =\ 0 Goverument trarssfer gayments =\ 0 (all values are in billions of dollars) -Refer to Table 10.1.The value of the tax multiplier in this economy is

If the MPC = 0.75,a decrease in personal taxes from $100 billion to $80 billion will increase real GDP by

Assume the economy is initially in equilibrium where potential GDP equals real GDP.If the economy experiences a positive demand shock,increasing consumer optimism,and the Bank of Canada does not change its target short-term nominal interest rate,the ________ shifts to the right and the output gap will be ________.

Equilibrium in the goods market occurs where

Expansionary monetary policy causes a ________ the MP curve and a ________ the aggregate demand curve.

Figure 10.3 Panel (a) Panel (b) -Refer to Figure 10.3..A negative demand shock with no change in the real interest rate is best represented by ________ in panel (a)and ________ in panel (b).

Figure 10.5 -Refer to Figure 10.5.A shift from MP₁ to MP₃ will occur if

Explain how the AD curve can be derived from the IS-MP model.

Figure 10.1 -Refer to Figure 10.1..If the level of real GDP is initially Y₃,spending is ________ production and there is an unexpected ________ in inventories.

Other things equal,if planned investment spending is greater than actual investment spending,then aggregate expenditure will be ________ real GDP and inventories will ________.

Assuming everything else constant,what effect will each of the following have on the long-term real interest rate? a. The expected inflation rate decreases. b. The default-risk premium increases. c. Investors expect future short-term interest rates to fall.

Assume that the economy is initially in equilibrium and the Bank of Canada decreases the nominal money supply.Construct a money market graph and an LM curve and use them to explain what happens if the Bank of Canada decreases the nominal money supply when the price level and output remain constant.

Figure 10.2 -Refer to Figure 10.2.Assume the economy is initially at equilibrium at potential GDP of $500 billion.If the MPC = 0.80 ,and real GDP falls to Y₂ = $400 billion,the vertical distance between AE₁ and AE₂ must be

Table 10.1 Consurmpticn C=\ 1.0+0.75 Irvestmernt =\ 1.9 Goverument purchases =\ 2 Net exports =-\ 0.5 Taxes =\ 0 Goverument trarssfer gayments =\ 0 (all values are in billions of dollars) -Refer to Table 10.1.Suppose that all of the information given in the table remains the same except that taxes equal $0.5 billion.If potential GDP equals $17 billion,by how much would government purchases have to change for equilibrium GDP to equal potential GDP?

Figure 10.9 -Refer to Figure 10.9..Other things equal,an increase in the nominal money supply by the Bank of Canada is best represented as a change in equilibrium from

Other things equal,if planned investment spending is less than actual investment spending,then aggregate expenditure will be ________ real GDP and employment will ________.

A negative demand shock causes a ________ the IS curve and a ________ the aggregate demand curve.

Figure 10.9 -Refer to Figure 10.9..Other things equal,a positive demand shock is best represented as a change in equilibrium from

Assume the economy is initially in equilibrium where potential GDP is greater than real GDP.If the expected inflation rate,the term structure effect,and the default-risk premium are constant,a decrease in the Bank of Canada's target short-term nominal interest rate will ________ the MP curve and the output gap will become ________.

The market for money is in equilibrium