For each of the following changes, what happens to the real interest rate and output in the long run, after the price level has adjusted to restore general equilibrium? How would the results differ, if at all, between the classical and Keynesian
model? Draw a diagram for each part to illustrate your result. (a) Wealth rises. (b) Money supply rises. (c) The future marginal productivity of capital increases. (d) Expected inflation declines. (e) Future income declines.
(a) The IS curve shifts up and to the right, so r rises and Y rises.
(b) The LM curve shifts down and to the right, so r falls and Y rises.
(c) The IS curve shifts up and to the right, so r rises and Y rises.
(d) The LM curve shifts up and to the left, so r rises and Y falls.
(e) The IS curve shifts down and to the left, so r falls and Y falls.
You might also like to view...
The relation between the nominal and real exchange rates is given by which of the following equations?
A) EX = ( × P)/ B) = (EX × P)/ C) EX = ( × )/P D) = (EX × )/P
A nation's standard of living: a. will increase substantially over time even for a small increase in the growth rate. b. will increase by the same amount as the increase in the growth rate
c. will decrease substantially over time even for a small increase in the growth rate. d. will increase less than the amount of the increase in the growth rate.