SarahKelly1993
Badges: 0
Rep:
?
#1
Report Thread starter 6 years ago
#1
Exams are coming up soon and we were instructed to use past papers to study but there's no answers available .. these are the questions im stuck on, someone please help :/ !! :

Q1 (i) Use the IS-LM model to describe the effects of the following changes on national income, the interest rate and investment:
(a) An increase in money supply
(b) An increase in government purchases.
(ii) Use the theory of liquidity preference to explain why an increase in the money supply lowers the interest rate. What does this explanation assume about the price level?


Q 2 Consider the impact of an increase in thriftiness in the Keynesian cross. Suppose that the consumption function is given by C = C + c(Y − T ) , where C is
autonomous consumption, the parameter c is the marginal propensity to consume, Y is income and T is taxes.
(i) What happens to equilibrium income when the society becomes thriftier, as represented by a decline in C ?
(ii) What happens to equilibrium saving?
(iii) Does this paradox arise in the classical model – why or why not?


Q 3 Explain why Keynes’s General Theory is a monetary theory of output determination.
0
reply
TSR Learn Together
Badges: 9
Rep:
?
#2
Report 6 years ago
#2
Hi there,

While you're waiting for an answer, did you know we have 300,000 study resources that could answer your question in TSR's Learn together section?

We have everything from Teacher Marked Essays to Mindmaps and Quizzes to help you with your work. Take a look around.

If you're stuck on how to get started, try creating some resources. It's free to do and can help breakdown tough topics into manageable chunks. Get creating now.

Thanks!

Not sure what all of this is about? Head here to find out more.
0
reply
cole-slaw
Badges: 5
Rep:
?
#3
Report 6 years ago
#3
(Original post by SarahKelly1993)
Exams are coming up soon and we were instructed to use past papers to study but there's no answers available .. these are the questions im stuck on, someone please help :/ !! :

Q1 (i) Use the IS-LM model to describe the effects of the following changes on national income, the interest rate and investment:
(a) An increase in money supply
(b) An increase in government purchases.
(ii) Use the theory of liquidity preference to explain why an increase in the money supply lowers the interest rate. What does this explanation assume about the price level?

a) increase of M pushes out the LM curve, so r goes down and Y goes up.
b) increase in G pushes out the IS curve, so r goes up and Y goes up.
ii. If the amount of money in the economy increases and price level stays fixed, then each person will on average have more money. Some they will spend (increasing Y) and some they will save (lowering the interest rates).




Q 2 Consider the impact of an increase in thriftiness in the Keynesian cross. Suppose that the consumption function is given by C = C + c(Y − T ) , where C is
autonomous consumption, the parameter c is the marginal propensity to consume, Y is income and T is taxes.
(i) What happens to equilibrium income when the society becomes thriftier, as represented by a decline in C ?
(ii) What happens to equilibrium saving?
(iii) Does this paradox arise in the classical model – why or why not?

i) Equilibrium output decreases as consumption drops
ii) equilibrium savings remain constant
iii) No. The initial drop in output will cause an drop in prices, wages will follow, and output will return to its original state but with a higher rate of savings.


Q 3 Explain why Keynes’s General Theory is a monetary theory of output determination.
money supply controls output
0
reply
American_student
Badges: 0
Rep:
?
#4
Report 6 years ago
#4
Q1 (i) Use the IS-LM model to describe the effects of the following changes on national income, the interest rate and investment:
(a) An increase in money supply
(b) An increase in government purchases.
(ii) Use the theory of liquidity preference to explain why an increase in the money supply lowers the interest rate. What does this explanation assume about the price level?
An increase in the money supply, would decrease interest rate, increase National Income and investment. An increase in the government purchases would increase interest rate (think of crowding out affect), and decrease investment and National Income.
0
reply
X

Quick Reply

Attached files
Write a reply...
Reply
new posts
Back
to top
Latest
My Feed

See more of what you like on
The Student Room

You can personalise what you see on TSR. Tell us a little about yourself to get started.

Personalise

What are you most likely to do if you don't get the grades you were expecting?

Go through Clearing (60)
40.82%
Take autumn exams (53)
36.05%
Look for a job (3)
2.04%
Consider an apprenticeship (4)
2.72%
Take a year out (19)
12.93%
Something else (let us know in the thread!) (8)
5.44%

Watched Threads

View All