Quiz on Chapters 12-14 - JeongsooKim QUIZ# 1 Describe the...

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Jeongsoo Kim PRINCIPLES OF MACROECONOMICS  QUIZ #5 – COVERING CHAPTERS 12 - 14      1. Describe the chain of events that are likely to unfold when the government reduces net taxes. Explain your answer in terms of its impact on aggregate output, the demand for money, the interest rate and planned investment The aggregate output will initially increase and the demand for money will increase as well which causes the interest rate to rise. This leads to planned investment being decline and causes the aggregate output to decline as well, balancing out some of the initial increase in output 2. Using the short-hand symbols Ms, r, I, Y, and Md to demonstrate the effects of an expansionary monetary policy. Ms r I Y Md which causes r to decrease less than if Md did not increase. 3. Explain how aggregate quantity-demanded falls when the price level increases and the impact this has on interest rates and aggregate output. When price level increases, aggregate quantity-demanded falls because higher price levels lead to an increase in the demand for money. With the money supply constant, the interest rate will go up and the money market will have equilibrium once again. The higher interest rate causes aggregate output to go down. 4.Discuss how the consumption link provides another explanation for the downward-sloping aggregate demand curve. Consumption expenditures and interest rates have an inverse relationship. For example, an increase in price level causes the demand for money which then causes the interest rate to go up which decreases consumption which then leads to a decrease in aggregate output 5.Discuss why the logic that explains why a simple demand curve slopes downward fails to
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