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.