Assignment2-2 - PORTLAND STATE UNIVERSITY DEPARTMENT OF ECONOMICS EC-312 Macroeconomic Theory Fall 2014 Assignment 2 DUE Oct 27 in class 1[10 points

Assignment2-2 - PORTLAND STATE UNIVERSITY DEPARTMENT OF...

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PORTLAND STATE UNIVERSITY DEPARTMENT OF ECONOMICS EC-312 Macroeconomic Theory Fall 2014 Assignment 2 DUE Oct 27 in class 1.[10 points] Based on your understanding of the IS-LM model, graphically illustrate and explain what effect a reduction in consumer confidence will have on output, the interest rate, and investment 2.[10 points] Use the IS-LM model to answer this question. Suppose there is a simultaneousincrease in taxes and reduction 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. 3.[5 points] If government spending and taxes decrease by the same amount, A) the IS curve does not shift. B) the IS curve shift leftward. C) the IS curve shifts rightward. D) the LM curve shifts downward. 4.[5 points] A reduction in the reserve deposit ratio, θ, will most likely have which of the following

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