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In the Keynesian model with a fixed money wage but a flexible price level, an increase in taxes will

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Subject: Economics
Due on: 03/31/2016
Posted On: 12/09/2015 12:05 PM

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1. In the Keynesian model with a fixed money wage but a flexible price level, an increase in taxes will lower

a.output and the price level, but leave the interest rate unchanged.

b.output, the price level and the interest rate.

c.output and the interest rate, but leave the price level unchanged.

d.output and the price level, but increase the interest rate.

e.the price level and the interest rate, but leave output unchanged.

2. Suppose the government want to increase aggregate demand without increasing interest rates. You would recommend

a.reducing transfer payments and increasing the money supply.

b.increasing government spending and reducing the money supply.

c.increasing taxes and the money supply.

d.increasing government spending and the money supply.

3. In the Keynesian model with a fixed price level and a fixed money wage, an increase in the money supply will cause

a.output to fall and interest rates to fall.

b.output to remain unchanged.

c.output to rise and the price level to fall.

d.output to rise and interest rates to fall.

4. If interest rates, prices, and output are all rising, then according to the Keynesian model, these changes must be caused by

a.an increase in aggregate supply.

b.a shift to the right of the LM curve.

c.a shift to the left of the LM curve.

d.a shift up in the IS curve.

e.none of the above.

5. The Keynesian AS curve differs from the classical AS curve in that:

a.the classical AS curve assumes flexible nominal wages.

b.the Keynesian AS curve is upward sloping.

c.the Keynesian AS curve focuses on short-run behavior.

d.b and c.

e.all of the above.

6. Which of the following explains why the AD curve is downward sloping?

a.a lower price level forces the government to reduce taxes, shifting the IS curve to the right and increasing income.

b.A lower price level forces the central bank to increase the money supply, shifting the LM curve to the right and increasing income.

c.A lower price level increases real money balances, shifting the LM curve to the right and increasing income.

d.none of the above are correct.

7. a.Cite the difference(s) between the classical and Keynesian aggregate demand schedules. What things shift aggregate demand in the classical model? What things shift aggregate demand in the Keynesian model?

b. What is the key difference between the classical and Keynesian aggregate supply functions? What is the key factor that drives these differences?

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