Exam 20: The Is Curve

If net exports increase by 100 and the mpc is 0.75,equilibrium aggregate output increases by

A tax cut initially

Everything else held constant,if aggregate output is to the ________ of the IS curve,then there is an excess ________ of goods which will cause aggregate output to fall.

The Federal Reserve increases interest rates when it wants to reduce aggregate demand to fight inflation. How do increases in the interest rate reduce aggregate demand?

When the interest rate rises

In the Keynesian framework,as long as output is above the equilibrium level,unplanned inventory investment will remain ________ and firms will continue to ________ production.

Everything else held constant,changes in the interest rate affect planned investment spending and hence the equilibrium level of output,but this change in investment spending

An appreciation of the U.S. dollar makes foreign goods cheaper relative to American goods,resulting in a ________ in net exports in the U.S. and a ________ shift of the IS curve in the U.S. ,everything else held constant.

If aggregated demand is less than actual output,unplanned inventory ________ will cause output to ________.

A decrease in interest rates

Keynes was especially concerned with explaining the

Keynes was especially interested in explaining movements of ________ because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase ________ in a similar economic situation.

In the Keynesian cross diagram,a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________,everything else held constant.

In the Keynesian cross diagram,an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up,the equilibrium level of aggregate output to ________,and the IS curve to shift to the ________,everything else held constant.

In the Keynesian framework,as long as output is ________ the equilibrium level,unplanned inventory investment will remain ________,firms will continue to raise production,and output will continue to rise.

Everything else held constant,if consumption expenditure increases by 65 for a 100 increase in disposable income,the mpc is

Everything else held constant,if total consumption increases from $600 to $800 because of an increase of disposable income of $400,then the mpc is equal to

A rise in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________,everything else held constant.

Keynes believed that unstable investment caused the Great Depression. Using the simple Keynesian model,explain how a fall in investment affects equilibrium output.

Assume equilibrium at full employment for an economy characterized by the simple Keynesian model. If the government raises taxes to eliminate a budget deficit,then