Question

1) Which of the following can cause the 45 degree line to shift in the Keynesian cross diagram?

a. A change in planned expenditure

b. A shock to AD

c. Changes in G, I, or C

d. Nothing can shift this line.

2) According to Keynes, the supply of real money and the demand for cash as opposed to other types of assets combine to find _____________ in equilibrium.

a. the federal funds rate

b. the real interest rate

c. the nominal interest rate

d. the price level

Answer 1

Answer-1 The correct option is d.) Nothing can shift this line.

It is a line that shows equality between Y=AD. It can never shift. It is only a reference line.

Answer-2 The correct option is b. ) the real interest rate.

In Keynesian model, real interest rate is determined when the supply of real money is equated to the demand for real money.