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Question 4 Discuss the following statements: (a) According to the IS-LM model how would an increase...

Question 4 Discuss the following statements:

(a) According to the IS-LM model how would an increase of government spending affect equilibrium interest rates and income in a short-run closed macroeconomy.

(b) According to the Classical Model of the aggregate economy, changes in aggregate demand have no effect on the amount of output produced, only the average pricelevel may be affected.

(c) Crowding out through interest rates occurs when expansionary fiscal pol-icy causes interest rates to fall.

(d) The relative bargaining power of workers versus firms, and thus the ability of workers to “bid up” the wage rate, depends on the unemployment rate.

(e) According to the AS-AD model of the macroeconomy, expansions of the money supply are not “neutral” but rather they will have medium and long-term effects on output and employment.

(f) The natural rate of unemployment is unaffected by policy changes.

(g) The aggregate supply relation implies that an increase in output leads to an increase in the price level.

(h) The natural level of output can be determined by looking only at the aggregate supply relation.

(i) The aggregate demand relation implies that an increase in the price level leads to an increase in output.

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