HomeworkLib
Question

In terms of IS-LM model how would tax cuts, a decrease in monetary spending and slowing...

In terms of IS-LM model how would tax cuts, a decrease in monetary spending and slowing the rate of growth of monetary supply affect the economy?

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

In terms of IS-LM model a tax cut will work as an autonomous increase in the consumption in the economy, this will shift the IS curve to the right and increase the output and interest rate in the economy.

Decrease in the monetary spending will shift the LM curve to the left, this will decrease the output and increase the interest rate, keeping these two effects into account, the interest rate in the market will increase and output in the market will be ambiguous. IT can be more or less as compared to before.

Slowing the rate of the money supply will increase the interest rate in the market.

0 0
Add a comment
Know the answer?
Add Answer to:
In terms of IS-LM model how would tax cuts, a decrease in monetary spending and slowing...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Contractionary Monetary Policy: A) Using the exchange rate market model, illustrate and explain how the monetary...

    Contractionary Monetary Policy: A) Using the exchange rate market model, illustrate and explain how the monetary policy action identified above may affect the exchange rate. Identify the new equilibrium on the diagram as point B. B) Using the IS-LM model, illustrate and explain how the economy and the unemployment rate may be impacted as a result of the change in the exchange rate in part a. Identify the new equilibrium on the diagram as point B.

  • 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...

  • IS-LM What combination of policies would best reduce inflation? a) Increase taxes, sell government bonds b)...

    IS-LM What combination of policies would best reduce inflation? a) Increase taxes, sell government bonds b) Decrease taxes, buy government bonds c) Decrease taxes, lower the reserve ratio d) Decrease government spending, lower the discount rate e) Increase government spending, raise the discount rate Use the IS-LM model. Your policy instruments are: Taxes, Government Spending, and the Money Supply. Describe a policy or set of policies that achieve the following objectives. Your answer should include a diagram to show how...

  • In the IS-LM model, an increase in government spending will result in An increase in income...

    In the IS-LM model, an increase in government spending will result in An increase in income and a decrease in the interest rate An increase in inactive money balances and a decrease in saving An increase in active money balances and a decrease in net taxes An increase in consumption and a decrease in investment

  • Use the classical (RBC) IS-LM-FE model to show the effects on the economy of a temporary...

    Use the classical (RBC) IS-LM-FE model to show the effects on the economy of a temporary decrease in government spending. You should show the impact on the real wage, employment output, the real interest rate, consumption, investment, and the price level Use the classical (RBC) IS-LM-FE model to show the effects on the economy of a temporary decrease in government spending. You should show the impact on the real wage, employment output, the real interest rate, consumption, investment, and the...

  • 1. Use the IS-LM model to show how an unexpected inflation could result in a higher...

    1. Use the IS-LM model to show how an unexpected inflation could result in a higher short-run GDP. 2. Use the IS-LM model to show how an expected inflation could result in a higher short-run GDP. Explain using an IS-LM diagram. Make sure you explain in words what happens in your diagram. 3) Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of this economy is $100 million, of which people carry $10 million...

  • In the early 1980s, the Reagan administration had very tight monetary policy (decrease in money supply),...

    In the early 1980s, the Reagan administration had very tight monetary policy (decrease in money supply), a big tax cut, and a big increase in government spending. The net effect was an increase in aggregate demand. [15 points] a. Use well labeled diagrams for the Keynesian cross (aggregate demand and supply) money market, FX market, and IS-LM curves to show what happened to the nominal interest rate, the exchange rate, consumption, investment, government spending, and net exports. b. What effect...

  • Please box answers! Thank you. 11. Monetary policy and the LM curve Aa Aa The following graph shows the demand and supply of real money balances in a hypothetical economy. Use the black point (X point...

    Please box answers! Thank you. 11. Monetary policy and the LM curve Aa Aa The following graph shows the demand and supply of real money balances in a hypothetical economy. Use the black point (X point) to indicate the equilibrium in this market. Dashed drop lines will automatically extend to both axes. REAL INTEREST RATE [Percent) 10 Equilibrium Supply New Supply New Equilibrium Demand 3 0 10 20 30 40 50 60 70 80 90 100 REAL MONEY BALANCES Help...

  • 4. President Trump's plan for tax cuts, infrastructure spending, and deregulation could spur increases in growth an...

    4. President Trump's plan for tax cuts, infrastructure spending, and deregulation could spur increases in growth and inflation. As a result, the 10-year Treasury yield has increased. What does this mean for the bond prices? (Indicate no change, increase, or decrease, and why).

  • As you know, the government, through various tax cuts and spending programs, sometimes tries to influence...

    As you know, the government, through various tax cuts and spending programs, sometimes tries to influence the state of the economy. What measures does the government have at its disposal and how do you think these actions would influence existing expansionary and recessionary gaps? Do you think these efforts are effective in the long term?

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT