Key Graphs

Question 1

How does Increase in k affect MPN and MPK

Answer 1

Increase MPN

Decrease MPK

Question 2

How does Increase in N affect MPN and MPK

Answer 2

Decrease MPN

Increase MPK

Question 3

What is real wage equal to

Answer 3

w/p = MPN

Question 4

How does positive supply shock affect labour demand curve

Answer 4

Increase in k which increases MPN which increases labour demand

Question 5

Examples of positive labour supply shocks

Answer 5

Decrease in future wealth or income

Increase in taxes

Increases in working age of adult population

Increase work force participation

Question 6

Examples of negative labour supply shock

Answer 6

Increase in wealth or future income

Question 7

For a lender where is there indifference curve wrt no borrowing or lending point

Answer 7

Above

Question 8

For a borrower where is there indifference curve wrt no borrowing or lending point

Answer 8

Below

Question 9

Factors that shift UC

Answer 9

Changes in real interest rate, depriciation or price of capital

Question 10

Factors that change MPKf curve

Answer 10

Technology changes

Increase in labour

Question 11

Optimal investment with out tax

Answer 11

P * MPKf = UC

Question 12

Optimal investment with tax

Answer 12

(1-t) * P * MPKf = UC

Question 13

Factors that shift investment curve to the rights

Answer 13

Decrease in effective tax rate in capital

Increase in MPKf

Question 14

Factors that shift the saving curve to the right

Answer 14

decrease in G

Increase in T

Decrease in future income

Decrease in wealth

Increase in current output

Question 15

Factors that shift bond demand curve to the right

Answer 15

Increase Liquidity, Return, wealth , expansion

Decrease in Riskiness or expected inflation

Question 16

Factors that shift Bond supply to the right

Answer 16

Expansion

Increase in expected inflation as cost of borrowing lower

Question 17

Factors that shift money demand the right

Answer 17

Dcerease in return, liquidity of bonds

Increase in riskiness of bonds

Increase in wealth

Increase in P
Decrease in expected inflation

Increase in Y

Question 18

Liquidity effect

Answer 18

Increase MS = excess supply of money - buy bonds back = increase Pb = decrease i

Question 19

Price level effect

Answer 19

increase MS = increase P = increase MD= sell bonds = decrease Pb = increase i

Question 20

Income effect

Answer 20

Increase income = increase MD = sell bonds so Pb decreases = increase i

Question 21

Expected inflationary effect

Answer 21

Increase P = increase in expected inflation = increase i

Question 22

Factors that shift FE to the right

Answer 22

Positive supply shock ( increase K = increase MPN )

increase A

Or increase NS / ND

Question 23

Factors that shift IS up and to the right

Answer 23

Increase I or decrease S
- Increase MPKf
- Decrease effective tax rate on capital

• increase G
• decrease T
• Increase wealth
• decrease future income

Question 24

Factors that shift LM curve to the right

Answer 24

Increase in MS or decrease in MD
-increase MS by central bank

• increase return, liquidity on bonds
• decrease riskiness of bonds
  -decrease wealth
• decrease P
• increase inflation expected

Question 25

Why does AD shift up

Answer 25

When IS-LM intersection shifts to the right

Question 26

3 ways to resolve negative is shock

Answer 26

1. Let prices adjust by themselves slowly
2. CB increase Money supply
3. Increase in G

Question 27

What can expansionary monetary policy and increase G cause

Answer 27

Inflation problems and crowding out affect