Some Macroeconomics questions

<p>Ok so I have some questions on macro and I’m pretty confused so I need some help seeing if I’m understanding this correctly. (I procrastinated on my online class so I still have some homework to finish up…how lame yeah.)</p>

<li>From a Keynesian point of view, when government expenditures and income taxes are increased by the same amount, how is aggregate demand affected?</li>

<p>~ I’m thinking AD still increases…because with the multiplier, increasing gov. exp. causes a greater increase in income, so even with the income taxes the same amount as gov. exp., there still is an increase in income, so AD still has an overall increase…am I right?</p>

<li>The economy has very high levels of inflation and unemployment is not a problem right now, which combination of monetary and fiscal policies would be best?
Policy // Tax Rate // Government Spending // Discount Rate
A. + - -
B. - + -
C. + + +
D. - - -
E. + - +</li>

<p>I’m thinking E, as it would be 2 contractionary policies…</p>

<li>Which of these creates a deficit in the current account of the US balance of payments?
A. a foreign company makes a loan to a U.S. firm
B. a US subsidiary exports raw materials to its foreign parent company
D. US firms and individuals receive dividends from investments in foreign countries
D. US tourists in Great Britain purchase pounds sterling
E. foreigners purchase US securities</li>

<p>So I’m thinking…not ADE because those are not counted in the current account, and not C because that income from abroad would create a surplus…so by process of elimination, it would seem to be B, but I’m not sure.</p>

<li><p>Which of these view the shape of the aggregate supply curve as steep and which as flat: Keynesians, Monetarists, Rational expectations theorists?
~here, for flat do they mean horizontal, or could it be horizontal or vertical?
is it K-flat, M-steep, R-steep?</p></li>
<li><p>To stimulate GDP, the government increases government spending. Tax rates stay the same and there is no change in monetary policy…how does income change…
A. no change because the money isn’t available for increased spending
B. the rise in income might be greater than predicted by the multiplier because higher interest rates stimulate investment
C. the rise in income might be less than predicted by the multiplier because the demand for money will go up and interest rates will rise
D. Income will go up exactly as predicted by the multiplier because monetary and fiscal policies are separate and have no relationship to each other
E. Income will not go up at all unless taxes are cut</p></li>

<p>So I’m thinking definately not A or E. And not B because high interest rates stimulate saving not investment. And the second part of D just doesn’t seem to match the question, so is it C?</p>


<p>1) Not really, the multiplier effect applies to both reduction and increase in spendings.</p>

<p>2) yeah.</p>

<p>3)D. Deficit involves spending you own money for something else. Only D spends dollars (for foreign currency). But I'm not that sure.</p>

<p>4) probably.</p>


<p>Thanks you.
1) I just remembered injections = leakages so that makes sense.</p>

<p>I'm still having problems with #3, because tourists purchasing foreign currencies is neither a good, service or unilateral transfer so it wouldn't be in the current account...unless it's implying that the tourists would purchase foreign goods....hmmmm</p>


I keep second-guessing #1, and now with the balance-budget multiplier, it seems that AD would have an increase afterall.