According to the Keynesian IS—LM model, what is the effect of each of the following on output, the real interest rate, employment, and the price level? Distinguish between the short run and the long run
(a) Expected inflation rises.
(b) Wealth increases.
(c) Labor supply decreases due to a change in demographics.
(d) The future marginal product of capital decreases.
(a) Short run: Y and N increase; r falls; P is unchanged. Long run: P rises; Y, r, and N are unchanged.
(b) Short run: Y, r, and N increase; P is unchanged. Long run: r and P rise; Y and N are unchanged.
(c) Nothing happens to any of the variables.
(d) Short run: Y, r, and N fall; P is unchanged. Long run: r and P fall; Y and N are unchanged.
You might also like to view...
By how much does the real, bilateral exchange rate change when the nominal, bilateral exchange rate changes from $1.40/£ to $1.60/£, the U.S. tradable basket from $2,100 to $2,200 and the British tradable basket from £1,500 to £1,600?
a. The real exchange rate rises by 16.35%. b. The real exchange rate falls by 3.1% c. The real exchange rate rises by 3.1% d. The real exchange rate falls by 10.8% e. The real exchange rate falls by 12.5%
Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. An economist would calculate the total profit for one photo frame to be
a. $10. b. $15. c. $20. d. $25.