the economics of money, banking, and financial markets

(Sean Pound) #1
689 #
© 2014 Pearson Canada Inc.#



  1. Equilibrium output is reduced by an increase in ____.
    A) planned investment
    B) taxes
    C) government spending
    D) net exports
    Answer: B
    Diff: 2 Type: MC Page Ref: 546 - 547
    Skill: Applied
    Objective List: 22.1 Utilize the Keynesian cross model for the determination of aggregate output




  2. Keynes believed that unstable investment caused the Great Depression. Using the simple
    Keynesian model, explain how a fall in investment affects equilibrium output.
    Answer: A fall in investment will reduce aggregate output by a greater amount that the initial
    fall in investment. This happens because of the multiplier effect.
    Diff: 2 Type: SA Page Ref: 546 - 547
    Skill: Applied
    Objective List: 22.1 Utilize the Keynesian cross model for the determination of aggregate output




  3. Describe Keynes's equilibrium condition and what it implies.
    Answer: Equilibirum occurs when the total quantity of the output equals the total amount of




aggregate demand or planned expenditure. When Y = YAD producers are able to sell all their
output and have no reason to change their production because there is no unplanned inventory
investment.
Diff: 2 Type: SA Page Ref: 546
Skill: Applied
Objective List: 22.1 Utilize the Keynesian cross model for the determination of aggregate output



  1. Define the IS curve.
    Answer: The IS curve shows the relationship between aggregate output and the real interest rate
    when the goods market is in equilibrium.
    Diff: 2 Type: SA Page Ref: 547
    Skill: Applied
    Objective List: 22.1 Utilize the Keynesian cross model for the determination of aggregate output

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