Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 9, Problem 2RQ
To determine
The relationship captured by the IS curve and instances where it would be shifted to the left.
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Students have asked these similar questions
List 4 factors that will cause the IS curve to shift to the right.
Name two macroeconomic variables that decline when the economy goes into a recession. Name one macroeconomic variable that rises during a recession.
The IS curve will not shift when which of the following occurs?
An increase in government spending.
An increase in firm confidence.
An increase in consumer confidence.
An increase in the money supply.
An increase in taxes.
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- Name and discuss the factors that shift the IS Curve. Give two examples, with the help of a diagram, of IS curve shifting, one to the left and one to the right.arrow_forwardWhat do the IS curve and the LM curve represent? What is the reason for their respective shape and what causes the IS and LM curves to shift?arrow_forwardConsider the following changes in the macroeconomy and show how to think about them using the IS curve. Explain how and why GDP is affected in the short run (assuming the real interest rate is constant). The government offers a temporary investment tax credit: for each dollar of investment that firms undertake, they receive a credit that reduces the taxes they pay on corporate income. A booming economy in Europe this year leads to an unexpected increase in demand by European consumers for US goods. US consumers suddenly love all things made in Brazil and sharply increase their imports from that country. A housing bubble bursts so that housing prices fall by 20% and new home sales drop sharply.arrow_forward
- What are some examples of changes in the economy that would lead to a movement along the IS curve? What are some changes that would shift the IS curve?arrow_forwardWhich equation represents the macroeconomic equilibrium condition in the aggregate expenditure (AE) model?arrow_forwardBased on the articles “Unemployment Claims Remain Historically High” and “US Consumer Spending Rose More Slowly in July” from the August 27, 2020 and August 28, 2020 issues of the wall Street Journal, respectively, please respond to the following questions: a. What do you think caused the substantial reversal in consumer spending after the dramatic drop during March and April of 2020? Illustrate graphically how would that have affected the consumption schedule. b. What seems to be possible reasons why consumer spending has slowed down in July and August? Are these factors consistent with some of the non-income determinants of consumption discussed in the text? If so, which ones? c. Investment spending also fell dramatically during the second quarter of 2020. What shifters in the investment demand curve seem to be important here? d. Given your answer to part c, explain and illustrate graphically using the investment demand curve diagram why a Federal Reserve policy of lower interest…arrow_forward
- Explain what causes shifts in the IS curve.arrow_forwardSuppose the Australian government increases the level of government spending. Explain how an increase in government spending impacts upon the position of the AD and AS curves. Use a relevant diagram and explain your answer in detail.arrow_forwardIf the price level in the economy goes up while all other factors affecting the economy remains the same,briefly explain how this increase in P will reduce C, I and NX.arrow_forward
- What are the underlying possible reasons for a J curve? Explain.arrow_forwardExplain, in detail, how the adjustment to macroeconomic equilibrium occurs when spending is less than production. Be sure to discuss how inventories play a crucial role in the adjustment process. State what happens to GDP and employment during the adjustment process.arrow_forwardIllustrate graphically and explain the derivation of the aggregate demand curve from the IS and LM curves.arrow_forward
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