Choose the correet answer!
The lS curve slops down because:
As the real interest rale rises,the govemment increasestaxes to finance the greater interest payments on
its debt
B.
As the real interest rate rises,the central bank tightens monetary policy.
C.
As the real interest rate rises,the govemment cuts back on its purchases.
D. As the real interest rate lrises,households investless in the stock market.
E. As the real interest rate rises,firms buy fewer machines and build fewer factories.
Keynes proposed a new way to analyze the economy,which he presented asan altermative to classicai theory
All of the following are true about his propositions except?
A. He supposed that low aggregale demand is responsible for the low income and high unemployment that
characterize economic downtums.
B. Assumes that aggregate supply alone determines national income
C.in the short run,total income is determined largely by the desire to spend by households,firns,and the
govemment.
DAl of the above are true.
3.One of the folowing is not the reason why planned and actual expenditures difer?
A. Firms might engage in unplanned inventory investment
B. fins are selling less than they are producing
C When aggregate demand and aggregate supply getsequal
D.Because planned expenditure increases as consumption increases
An increase in govemment expenditure increases planned expenditure.Which of the following isnot true about
govemment purchase multiplier?
A. Initially,increase in expenditure by Δ G,rises income by AG and consumption by MPC*AG.
B. Tells us how much income rises in response toa $1 increase in govermment purchases.
C.
The govemment purchase multiplier ΔYIAG is equal to one over one minus marginal propensity to
consume.
D.
Is always greater than unity
Interest rate is the opportunity cost of holding money.
The correct answer is B.
B. As the real interest rate rises, the central bank tightens monetary policy.
Keynes proposed a new way to analyze the economy, which he presented as an alternative to classical theory. All of the following are true about his propositions except:
B. Assumes that aggregate supply alone determines national income
One of the following is not the reason why planned and actual expenditures differ:
D. Because planned expenditure increases as consumption increases
An increase in government expenditure increases planned expenditure. Which of the following is not true about government purchase multiplier?
D. Is always greater than unity
Interest rate is the opportunity cost of holding money.