I need assistance in the following problem:
Describe the policy mix that would result in each of the following situations:
a. The interest rate decreases, investment increases, and the change in aggregate output is indeterminate.
b. Aggregate out increases, and the interest rate change is indeterminate.
c. The interest rate increases, investment decreases, and the change aggregate output is indeterminate.
d. Aggregate output decreases, and the interest rate change is indeterminate.
The interest rate decreases, investment increases, but the change in aggregate output is indeterminate. The policy mix is an expansionary monetary policy. This policy reduces interest rates leading to higher investment. There is no change in fiscal policy or the fiscal policy is unknown because the change in aggregate output is indeterminate. Mix: Expansionary monetary policy, no change in fiscal ...
This solution explains policy mix in goods and money markets. The sources used are also included in the solution.
A description of Keynesian policies and how they affected the New Deal. Also includes a discussion of the pros and cons of Keynesian economic theory and how modern economists can improve on his theories.
Keynesian economic policy is a diversion from the laissez-faire concept of a free market economy. A laissez-faire concept of the economy argues that the laws of supply and demand should regulate prices, interest rates, employment and other aspects of the economy. Keynesian economics argues that there are times when the federal government should step in and "jump start" or boost the economy in economically depressed times.
Keynesian policies do not advocate that the government take over the economy completely. They actually encourage a mixed economy where most industries and utilities are owned privately. Keynes advocated the discouragement of savings. A central part of his economic theory was the idea of the circular flow of money. He argued that when a person spent his money that became the earnings of another person who in turn spent his money providing an income for still another person. This circular flow of money was what propelled a normally functioning economy. He argued that the Great Depression caused people to naturally want to hang on to their money rather than spend it. He said that in order to keep the economic cycle going, the government should step in and provide jobs, tax breaks and an influx of cash in order to keep the economy alive. Many of these ideas became foundational in New Deal programs such as defense spending, government works projects, and tax breaks.View Full Posting Details