According to Keynesian IS-LM model, what is the effect of each of the following on output, the real interest rate, umemployment and the price level? Distinguish between short run and long run.
a) Increased tax incentives for investment ( the tax breaks for investment are offset by lumpsum tax increases that keep total current tax collections unchanged)
b) Increased tax incentives for saving ( lumpsum tax increases offset the effect on total current tax collections)
c) A wave of investors pessimism about the future profitability of capital investments.
d) An increase in consumer confidence as consumers expect that their incomes will be higher on the future
2) suppose the central bank has a policy i increasing the money supply when it observes that the econmimy is in recession. But, suppose that avour six months are needed for an increase in the money supply to affect aggregate demand, which is about the same amount of time needed for firms to review and reset their prices. What effects will the central bank have on output and price stability? Does your answer change if a) the central bank has some ability to forecast recessions or b) price adjustment takes longer than six months??
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a) Increased tax incentives for investment ( the tax breaks for investment are offset by lumpsum tax increases that keep total current tax collections unchanged)
b) Increased tax incentives for saving ( lumpsum tax increases offset the effect on total current tax collections)
c) A wave of investors pessimism about the future profitability of capital investments.
d) An increase in consumer confidence as consumers expect that their incomes will be higher on the future
2) suppose the central bank has a policy i increasing the money supply when it observes that the econmimy is in recession. But, suppose that avour six months are needed for an increase in the money supply to affect aggregate demand, which is about the same amount of time needed for firms to review and reset their prices. What effects will the central bank have on output and price stability? Does your answer change if a) the central bank has some ability to forecast recessions or b) price adjustment takes longer than six months??
Many Many Thanks!!!!!