Use the IS-LM model to answer this question. Suppose there is a simultaneous increase in government spending and increase in the money supply. Explain what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know with certainty what effect this policy mix will have on investment? Explain
What will be an ideal response?
In this case, the LM curve shifts down and the IS curve shifts to the right. The output will clearly be higher. The effects on interest rate depend on the relative magnitude of the two policies. The effects on I are also ambiguous. If interest rate falls, I will be higher. However, it is possible that interest rate will rise here which creates the ambiguity.
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What happens to the equilibrium wage and quantity of labor if output price rises?
A) The equilibrium wage and the equilibrium quantity of labor rise. B) The equilibrium wage rises and the equilibrium quantity of labor falls. C) The equilibrium wage falls and the equilibrium quantity of labor rises. D) The equilibrium wage and the equilibrium quantity of labor fall.
Third parties generally cannot win elections under a majority vote system because _____
a. the original two parties make it illegal for third parties to exist b. the original two parties are able to use the power of incumbency to raise the large amount of money necessary to run a winnable election c. the original two parties will have already split the voting population by placing their platforms on either side of the median voter d. the original two parties have already "locked-in" most eligible voters as members of their parties