Setup, from Q52 of the paper:
Consider the fixed-price model: with ; with ; ; money demand with ; and . In this economy, an increase in
(Same fixed-price model.) The more negative is , ceteris paribus,
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Setup, from Q52 of the paper:
Consider the fixed-price model: with ; with ; ; money demand with ; and . In this economy, an increase in
(Same fixed-price model.) The more negative is , ceteris paribus,
Tap an option to check your answer.
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Setup, from Q52 of the paper: Consider the fixed-price model: C=C₀+c₁(Y-T) with 0<c₁<1; I=i₀+i₁r with i₁<0; Y=C+I+G; money demand M^d=m₀+m₁Y+m₂r with m₂<0<m₁; and M^d=M. In this economy, an increase in G (Same fixed-price model.) The more negative is m₂, ceteris paribus, (A) the greater the effect of an increase in G on r. (B) the smaller the effect of an increase in G on r. (C) The magnitude of the effect of G on r does not depend on the magnitude of m₂. (D) r decreases as G increases, but the magnitude of this is indeterminate.
Also written as: Setup, from Q52 of the paper: Consider the fixed-price model: C=C_0+c_1(Y-T) with 0<c_1<1; I=i_0+i_1r with i_1<0; Y=C+I+G; money demand M^d=m_0+m_1Y+m_2r with m_2<0<m_1; and M^d=M. In this economy, an increase in G (Same fixed-price model.) The more negative is m_2, ceteris paribus,
IS-LM model has come up 137 times in 7 exams since 2004.
This question is on Fiscal policy and crowding out in IS-LM, part of IS-LM model in Macroeconomics.
How government spending and taxes move income and the interest rate, and how much private spending is displaced.
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Question from the DSE 2011 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.