Practice ch10

Practice ch10 - Chapter 10: K eynesian Cross and the I S-LM...

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Chapter 10: Keynesian Cross and the IS-LM Model Outline for review The Good Market x The Keynesian Cross: (study equations and graphs) o What is planned expenditure? o What is the equilibrium condition in the Keynesian cross? o Fiscal policy and the Multiplier ± Government-purchases multiplier ± Tax multiplier o The interest rate, investment, and the IS curve ± Deriving the IS curve: from the Keynesian cross and the investment demand curve. (draw the connecting three diagrams as in Figure 10.7 p. 288) ± Explain why the IS curve is negatively slope. ± What factors determine whether the curve is steep or flat? ± How fiscal policy shifts the IS curve: Tax and/or G ± Also, look at the Loanable-funds interpretation of the IS curve The Money Market and the LM Curve x The Theory of Liquidity Preference o The equilibrium in the market for real money balance: graph and equations. ± The supply of money balance ± The demand for real money balance o Income, Money Demand, and the LM Curve ± How the LM is derived from different income level and the market for real money balance. ± Explain why the LM curve is positively slope. ± What factors determine whether the curve is steep or flat? o How Monetary Policy Shifts the LM Curve Short-run Equilibrium ± Combine the IS-LM curve, the equilibrium of the economy is at the intersection of the IS curve and the LM curve.
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Practice Problems 1. For the purposes of the Keynesian cross, planned expenditure consists of: A) planned investment. B) planned government spending. C) planned investment and government spending. D) planned investment, government spending, and consumption expenditures. 2. According to the analysis underlying the Keynesian cross, when planned expenditure exceeds income: A) income falls. B) planned expenditure falls.
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Practice ch10 - Chapter 10: K eynesian Cross and the I S-LM...

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