ECON-1111 Study Guide - Final Guide: Money Supply, Real Interest Rate, Khan Academy

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tealelk528

11 Dec 2016

School

Vanderbilt University

Department

Economics

Course

ECON-1111

Professor

Driskill Robert

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Document Summary

This is a part from class that was not included in the textbook from khan academy. This can be viewed from both a mathematical and practical standpoint. As interest rates increase, people are going to be less likely to get loans from the bank and use them for investment. Furthermore, when there is a natural interest rate that is greater than a project, one would not invest in it. In that case the only project that would yield a return would be 10%. Then you would be a, b and c investing. Investment is dependent on interest rates, and if interest rates decrease investment will increase. Video 3: lm part of the is-lm model: as interest rates decrease, investment will increase which will increase the gdp, or you could see that real gdp drives more savings which means interest rates will be lower. If the gdp is higher, consumer saving will go up but just at a smaller amount.

Related Questions

1. The multiplier helps explain

A. why a decrease in taxes causes real Gross Domestic Product (GDP) to fall by more than the amount of the decrease in taxes.

B. why a fall in investment cause real Gross Domestic Product (GDP) to rise by more than the amount of the decrease in investment.

C. why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.

D. why an increase in disposable income causes real Gross Domestic Product (GDP) to rise by less than the amount of the increase in disposable income.

2. If the marginal propensity to save (MPS) increases, the multiplier

A. decreases.

B. can either increase or decrease, depending on what happens to the marginal propensity to consume (MPC).

C. stays the same.

D. increases.

QUESTION 60

The investment function will shift when there is a change in

		A. the opportunity cost of retained earnings.
		B. firms' profit expectations.
		C. the cost of borrowing.
		D. the interest rate.

1.43 points

QUESTION 61

In the Keynesian model, whenever planned saving exceeds planned investment,

		A. there will be unplanned inventory accumulation.
		B. real GDP will not be influenced.
		C. the interest rate will remain unchanged.
		D. there will be unplanned inventory depletion.

1.43 points

QUESTION 62

In the Keynesian model, whenever planned saving is less than planned investment,

		A. there will be unplanned inventory depletion.
		B. the interest rate will remain unchanged.
		C. there will be unplanned inventory accumulation.
		D. real GDP will not be influenced.

1.43 points

QUESTION 63

Government purchases

		A. are determined by the political process.
		B. are determined by the public.
		C. are influenced by interest rates.
		D. are determined by suppliers.

1.43 points

QUESTION 64

If, at some level of output, total planned real expenditures are less than real Gross Domestic Product (GDP),

		A. real GDP will either fall or remain unchanged, depending on the MPC.
		B. real GDP will rise.
		C. real GDP remains unchanged.
		D. unplanned inventories will increase and real GDP will fall.

1.43 points

QUESTION 65

When the economy is operating at the equilibrium level of GDP, we know that

		A. total planned real expenditures equal real GDP.
		B. real net exports equal inventory changes.
		C. planned real investment spending equals real net exports of zero.
		D. total planned real consumption expenditures equal real GDP.

1.43 points

QUESTION 66

One divided by the marginal propensity to save (MPS) is the formula for

		A. the inverse of the multiplier.
		B. the multiplier.
		C. one minus the multiplier.
		D. autonomous consumption.

QUESTION 67

Thinking like an economist would, which is true of investment?

		A. Investment represents spending on capital goods.
		B. Investment is a stock concept.
		C. Investment is putting money into stocks and bonds.
		D. It is the portion of disposable income that is not used for consumption or saving.

QUESTION 68

Other things being equal, if input prices rise in a country, then there would be

		A. cost-push inflation.
		B. demand-pull inflation.
		C. cost-pull deflation.
		D. more production and a lower price level.

QUESTION 69

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

		A. existing capital equipment can be used more intensively.
		B. wage rates rise almost simultaneously with the price level.
		C. the unemployment rate usually rises dramatically along with the price level.
		D. workers can be switched from counted to uncounted production.

fuchsiaclam197

How would I respond to this post below. I just need something very short.

If I had a fixed 30-year mortgage and the economy experienced unanticipated inflation,the borrower would be the winner and the lender would be the loser in the given scenario. The reason being is if a society experiences unanticipated inflation, individuals and institutions will change their behavior. For example, potential homeowners will not be able to borrow from banks at fixed rates of interest, but will be required to accept loans whose rates can be adjusted as inflation rates change. Banks do not want to lend money at a fixed interest rate if there is a strong likelihood that inflation will erode the real value of the income stream they expected. However, if banks become reluctant to make loans with fixed interest rates, this imposes more risk on homeowners. In this scenario the fixed loan was made prior to the unexpected inflation sodebtors will gain at the expense of creditors. Creditors, on the one hand, will lose because inflation will erode the amount of money they planned to earn on the loans. Since the loans have already been made, there

apricotmink563

Assume the money sector (LM-curve) can be described by the following two equations:

md=(1/4)Y-10i and ms=400.

In the expenditure sector only investment spending (l) is affected by the interest rate (i) and the equation of the IS-curve is Y=2,000-40i.

a.) Assume the size of the expenditure multiplier is ^(triangle)G=2. What is the effect of an increase in government purchases by ^(triangle)G=200 on income and interest rates?

b.) By how much will private investment be crowded out as a result of this increase in government purchases?

c.) If the money demand equation were changed to md=(1/4)Y (note the interest rate does not enter the demand function for money) how would your answers in questions "a" and "b" change?

ECON-1111 Study Guide - Final Guide: Money Supply, Real Interest Rate, Khan Academy

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