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21 Oct 2020

In the IS model, how does the increase in interest rate affect the national income or output?

    1. The increase in interest rate will affect national income or output through investments. 

    2. The increase in interest rate will affect national income or output through savings.

    3. The increase in interest rate will affect national income or output through consumption.

    4. The increase in interest rate will affect national income or output through money supply

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Kristelle Balando
Kristelle BalandoLv10
21 Oct 2020

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Related questions

Suppose the government increases its spending on infrastructure (increase government spending) by issuing government bonds, which means the government does not increase current taxes but are expected to increase future taxes. Suppose further that households are myopia, meaning that they do not recognize the future tax increase.

1. How would this affect national savings?

2. Is the absolute change in national savings bigger than, equal to, or smaller than the absolute change in national savings in a situation where households recognize the future increase in taxes?

a) Write down the national account identity for a closed economy. Then, show the identity between national savings (i.e. the sum of private savings and government savings) and investment. You must show all of the steps.

b) Write down the national account identity for an open economy. Again, show the identity between national savings (i.e. the sum of private savings and government savings) and investment. Show all of your steps.

c) Based on the saving and investment relationship in the closed economy in part a), explain how an increase in government purchases (G) can affect growth in output per worker. We assume that the taxes that the government collects remain unchanged.

27.Individuals with low incomes probably

a. pay no Social Security tax

b. pay more Social Security tax than income tax

c. pay less Social Security tax than personal income tax

d. pay no taxes at all

e. are avoiding most of their tax payments

28. Which of the following is true?

a. The federal budget deficit is a flow and so is the national debt.

b. The national debt is both a stock and a flow.

c. The federal budget deficit is a stock and the national debt is a flow.

d. The federal budget deficit is a flow and the national debt is a stock.

e. The federal budget deficit is stock and so is the national debt.

30. When the U.S. government runs a deficit, it usually does the following:

a. it buys government bonds from the public

b. it asks the Treasury Department to print money to pay for the deficit

c. it sells new government bonds to the public

d. it borrows money directly from the Federal Reserve

e. it asks the Federal Reserve to print money to pay for the deficit

32. Under what condition can the U.S. government continue to pay interest on a rising debt without eventually needing to increase the average tax rate?

a. if the national debt grows at the same rate as nominal GDP

b. if the nominal interest on the national debt grows faster than nominal GDP

c. if the total interest payments on the national debt grow faster than nominal GDP

d. if the national debt grows faster than nominal GDP

e. if the real interest on the national debt grows faster than real GDP

34.The national debt

a. will be zero when the federal budget is balanced.

b. has been shrinking in the last 30 years.

c. is equal to the government’s budget deficit.

d. can grow without negative economic effects.

36.In the long run,

a. an increase in the federal budget deficit can lower the interest rate and investment spending.

b. an increase in the federal budget deficit can raise the interest rate and investment spending.

c. a decrease in the federal budget deficit can lower the interest rate and raise investment spending.

d. a decrease in the federal budget deficit can raise the interest rate and lower investment spending.

44. If the Fed conducts open market purchases (of bonds), we should expect to see the money supply

a. decrease, the interest rate increase, autonomous consumption decrease, business investment decrease, and real GDP decrease

b. increase, the interest rate decrease, autonomous consumption decrease, business investment decrease, and real GDP decrease

c. increase, the interest rate decrease, autonomous consumption increase, business investment increase, and real GDP increase

d. decrease, the interest rate decrease, autonomous consumption increase, business investment increase, and real GDP decrease

e. decrease, the interest rate increase, autonomous consumption increase, business investment increase, and real GDP increase

48. In the classical model the interest rate is determined in the money market; in the short-run macro model, the interest rate is determined in the market for loanable funds.

a. true

b. false

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