Macroeconomics Answers

10. Within the classical model, analyze the effects of an increase in the marginal income tax rate. Explain how output, employment, and the price level are affected. Consider cases in which the increased revenue produced by the tax increase results in a decline in bond sales to the public and in which it results in lower money creation.

Explain how the interest rate works in the classical system to stabilize aggregate demand in the face of autonomous changes in components of aggregate demand such as investment or government spending.

Explain how the interest rate is determined in the classical theory.

Classical economists assumed that velocity was stable in the short run. But suppose that, because of a change in the payments mechanism—for example, greater use of credit cards— there was an exogenous rise in the velocity of money. What effect would such a change have on output, employment, and the price level within the classical model?

Define the term velocity of money . What factors determine the velocity of money in the classical system? What is the relationship between the velocity of money and the Cambridge k ?

2. what are the differences between the Fisherian and Cambridge versions of the quantity theory of money?

1. Explain the role of money according to the Cambridge approach. Specifically, explain the relationship between the quantity of money, the price level, and the level of output.

7. provide examples of demand-side factors that would not affect the level of output and employment.

8. Suppose that, due for example to reconstruction after a war, the capital stock of a nation increases. Use the graphical framework of F igure 3 -4 to illustrate the effect that the increase in the capital stock would have on output, employment, and the real wage in the classical model.

explain how aggregate demand is determined within the classical model .What would be the effect on output and price level drop the moeny suppl?