How have financial innovations such as direct deposit of paychecks, electronic payment of bills, and automated teller machines (ATMs) affected the velocity of money and the demand for real money balances? What will be an ideal response? ANSWER Because of these innovations, each unit of money is more quickly and easily available for transactions. […]
An decrease in the velocity of money for given levels of income and the interest rate would shift the a. LM curve up. b. IS curve up. b. IS curve down. c. LM curve down. ANSWER A
Are all categories of government expenditures included in gross domestic product? What government activities are not included in GDP? What will be an ideal response? ANSWER No, all categories of government spending do not represent a demand for currently produced goods and services. For instance, government spending on transfer payment programs like social security […]
Suppose that the government imposes a tax on firms for money wages they pay. How would this change the classical aggregate supply curve? Why? What will be an ideal response? ANSWER The tax would effectively increase the money wage, requiring the marginal product of labor to rise and the quantity of labor to fall. […]
Which of the following are equilibrium conditions in the simple Keynesian model? a. Ir = I b. G = T c. S + T = I + G d. Y = C + I + G e. A, c, and d ANSWER E
The phenomenon in which an insured individual takes less care in preventing the event against which she is insured is an example of A) foolish behavior. B) adverse selection. C) moral hazard. D) double coincidence of wants. ANSWER C
In the real intertemporal model with investment, there is intertemporal substitution with respect to A) consumption and leisure. B) government spending. C) capital. D) current consumption. ANSWER A
How does the treatment of international transactions differ with respect to gross national product and gross domestic product? Explain. Why do you think that the U.S government has switched from using GNP to using GDP What will be an ideal response? ANSWER Gross national product includes earnings of U.S. corporations overseas and U.S. residents […]
If the consumption function is given by C = 200 + 0.6YD, then an increase in taxes of 50 units will cause the IS schedule to a. shift to the right by 75 units.. b. shift to the left by 50 units. c. shift to the left by 75 units. d. shift to the left […]
According to the new classical model, a. anticipated declines in aggregate demand would move output and employment below the full-employment levels. b. announced declines in aggregate demand do not change output and employment above the full-employment levels. c. anticipated declines in aggregate supply would only put employment below the full-employment level. d. unanticipated declines in […]
