Macroeconomics Answers

Suppose that government changes its fiscal policy and imposes income tax on the per hour wage that 

labor earns. This would affect output and employment in Classical Model. True or false give reson in five lines

5. It is possible that the interest rate might affect consumption spending. An increase in the in-

terest rate could, in principle, lead to increases in saving and therefore a reduction in con-

sumption, given the level of income. Suppose that consumption is, in fact, reduced by an 

increase in the interest rate. How will the IS curve be affected?

5. Discuss, using the IS-LM model, what happens to interest rates as prices change along a 

given AD schedule.

2. Suppose the government cuts income taxes. Show in the IS-LM model the impact of the tax cut un-

der two assumptions: (1) The government keeps interest rates constant through an accommodating 

monetary policy. (2) The money stock remains unchanged. Explain the difference in results.

1.If a Japanese car costs 500,000 yen, a similar American car costs $10,000, and a dollar can buy 100 yen, what are the nominal and real interest rates?

Using the assumption of the labour market in unit 9, if employment equals 20 000 people and output is 35 000, we can conclude that

A. there is no cyclical unemployment.

B. there is no frictional unemployment.

C. the economy has not reached equilibrium.

D. there is no structural unemployment.