What do Keynesians mean when they say that "you can't push on a string"?
A) An increase in the supply of goods does not really create its own demand.
B) If the government reduces taxes in an attempt to increase household consumption, it will not always work.
C) An increase in the money supply will not always stimulate the economy.
D) If the government wants to get something done, the best way is not to force the issue, but to offer incentives.
E) If the government puts too much expansionary pressure on the economy, it will probably "overheat."
C
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In the IS-LM model, an increase in government spending in the goods market has an impact on the money market because
a. it increases the money supply. b. it increases income, which increases money demand. c. it decreases income, which decreases money demand. d. it increases interest rates, which decreases money demand. e. none of the above.
Suppose that supply increases and demand decreases. What effect will this have on price and quantity?
A. Price will decrease and quantity will increase. B. Price will decrease and quantity will decrease. C. Price will increase and quantity may rise or fall. D. None of the statements associated with this question are correct.